Merrill Lynch Reduces Online Ad Forecast

By: Paul Bond (The Hollywood Reporter) A week after cutting its 2002 overall ad spending forecast to a decline of 2.6% from a previously estimated 0.7% drop, Merrill Lynch on Tuesday reduced its online advertising estimate to 10%-15% growth from a previous forecast of 20%-25%.

But Merrill Lynch analyst Henry Blodget said, "We continue to believe that the market growth will reaccelerate in 2002 and beyond." That bit of optimism was enough to initially boost shares of Yahoo! Inc., DoubleClick Inc., AOL Time Warner Inc., and other companies that would benefit from a strengthened Internet ad market. But by the end of trading Tuesday, only AOL Time Warner held on to a gain, while the others succumbed to selling pressure in the tech sector.

In an AOL Time Warner bulletin issued Tuesday, Blodget and his team wrote that with just 25% of total revenue coming from advertising, "AOL Time Warner is sheltered from the storm, but it is by no means immune." Merrill Lynch maintained its "buy" rating on the stock, with a price objective of $65-$70. AOL Time Warner closed up 0.15 on Tuesday at 37.50.

Merrill Lynch is forecasting a 6% decline in revenue for the online advertising sector in 2001 compared with 2000, mostly because of the myriad dot-com bankruptcies. According to the Merrill Lynch report, a handful of market leaders -- AOL Time Warner, Microsoft's MSN, TerraLycos, CNET, Goto.com, DoubleClick, Excite@Home, Homestore.com and Yahoo! -- garner 85% of all online ad revenue.