In a move that we think will be the first of many, a Wall Street analyst has trimmed his estimate for the growth of online advertising in 2007 and 2008. Sandeep Aggarwal, a diligent analyst at Oppenheimer, is now looking for US online growth of 25% this year, vs a prior estimate of 26%. The magnitude of the cut is obviously immaterial: Aggarwal is essentially arguing, as he did two weeks ago, that the mortgage collapse will have no impact on U.S. online ads. We respectfully disagree with this conclusion, and we also view the direction of the revision–down–as notable.
In our experience, when major trends in estimate revisions change, they change for a long time. More importantly, in our experience, the first cut is almost never the last. If the mortgage crisis plays out the way we expect it might, Aggarwal’s cut will be the first of many–at Oppenheimer and elsewhere–as the mortgage and housing impact spills over into the rest of the financial services industry and the broader economy.
We agree with Aggarwal on three points:
- Online ads will be less affected than other media
- Paid search will be less affected than display ads
- International will be less affected than U.S.
We do not agree with the consensus, however–that Google and online advertising will essentially be untouched by a bit of a problem in a small, isolated corner of the economy.