WebMD Dampens Financial Prognosis On Ad Slowdown

logoWebMD Health Corp. on Wednesday lowered its financial guidance for 2008, citing a softening ad marketplace.

In a statement announcing its revised outlook, WebMD pointed to "a recent shift toward shorter-term buying commitments in certain of its customers' consumer advertising purchases which the Company believes is driven by increased caution in the current business climate."

In short, that means the broader economic downturn will lead marketers to reduce ad spending on WebMD, which ranked as the top health site in March with 20.2 million unique visitors, according to comScore.

Specifically, the company lowered its 2008 revenue forecast from a range of $395 to $415 million to $380 to $395 million.

Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of $107.5 million to $120.0 million for 2008 was dropped to $97.5 million to $107.5 million, and net income was reduced from 36.5 million to $46 million to $29.5 million to $37.5 million.

WebMD had already cut its previous revenue guidance in February from an original range of $415 million to $430 million. At that time, the company cited a more conservative outlook on its display ad agreement with Yahoo as well as "a more cautious business environment" in lowering its forecast.

WebMD said Wednesday that it would report first-quarter results at the high end of its projected range for revenue, EBITDA and net income. Solid quarterly results would be in line with the latest earnings from Google, Yahoo and Omnicom Group, suggesting that the ad market hadn't been hit by a slowdown to start the year.

Research firm eMarketer, however, has already trimmed its forecast for online advertising in 2008 to $25.8 million from $27.5 million as a result of the "foundering" U.S. economy.

At the same time, eMarketer released a report this week in which pharmaceutical marketers said they planned to spend more this year on Web sites, search and e-mail marketing and less on traditional media.

That trend would appear to benefit WebMD and other health sites that rely heavily on pharmaceutical and other health-related advertisers for revenue.

The eMarketer study cautioned, however, that while online spending by drug companies will grow to 2.2 billion by 2011, it will remain only about 5% of the pharmaceutical industry's total ad budget over the next three years.

WebMD ranked as the top health property in March with 20.2 million unique visitors, according to comScore. The WebMD Health Network includes WebMD Health, Medscape, MedicineNet, eMedicine, eMedicine Health, RxList and theHeart.org.

Analysts on Wednesday expressed concern over whether WebMD's preliminary numbers signal trouble for other online health destinations.

"The biggest question is whether the slower trends are WebMD-specific or industry-wide," Goldman Sachs analyst Jennifer Watson wrote in a client note Wednesday.

"Specifically, we wonder if advertisers are testing lower-cost options, including emerging ad networks that deliver impressions across smaller consumer health and beauty sites," Watson added. --with Gavin O'Malley

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