Internet No Longer Immune to Economic Slowdown

Sorry to disappointing everyone, but the evidence today is piling up: the Internet really is a part of the overall economy. While the optimists had hoped that the efficiency of Internet-based advertising would make it a more appealing place to buy ads in a downturn, it is increasingly obvious that the current economic straits are too widespread for Internet businesses to avoid. Companies of almost every description are feeling the pain. They are cutting spending. And one thing they are trimming back on is spending on Internet advertising.

While it never made too much sense to imagine that Net companies could avoid feeling the pinch of a weaker economy, over the last 24 hours the market has received a wealth of new data points that prove the case:

• Valueclick (VCLK) warned on both Q2 and all of 2008, noting that “the macroeconomic environment negatively impacted revenue in the quarter, primarily in the U.S. comparison shopping and U.S. display advertising businesses.”
• LookSmart (LOOK) pre-announced a weak Q2, citing “an unanticipated softening in search advertising demand.”
• Google’s (GOOG) EPS for Q2 came up light, as paid clicks fell 1% sequentially.
• Microsoft’s (MSFT) online services sector had a weak quarter , with the company’s revenue target for the quarter coming in $90 million light, due in part to lower pricing for display advertising.
• And let’s not forget that eBay (EBAY) yesterday provided disappointing guidance, and weaker-than-expected growth in gross merchandise volume - they basically sold less stuff than the Street had expected.

So who’s next? As I noted earlier, there are concerns that the weak display ad business could also affect results at Yahoo (YHOO) and Time Warner’s (TWX) AOL business. And there could be plenty of other casualties before the June quarter earnings season is through.

Expect an ugly session today while the Street tries to sort it out.

Comments

[kylesch]

Did you listen to the Google conference call at all? They had an economist explain some of the macroeconomic trends they see in their data. Basically they said that advertisers are *not* cutting spending, in fa ct in some industries, like automotive, advertisers are bidding up higher to attract a smaller set of consumers. Indeed consumers are being more cautious with their online spending habits, but Google also said that they expect consumers to do more research online before they buy (making their dollar go further). This in turn should lead to more clicks in the future, like the Wal-Mart effect.

[Badger The Lion]

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