Bad news fast and furious this morning that could eventually affect Yahoo (YHOO), Google (GOOG), and other media leaders:
- Comcast saying macro economy has deteriorated significantly since Q3.
- RBC analyst Jordan Rohan saying financial advertisers are slashing spending. Jordan expects the latter will hit financial portal Bankrate (RATE), and he was a big bull on RATE last summer, so this change is meaningful.
Based on these and other data points over the past month, we think the scenario we began outlining in August is coming to fruition: weakness in the mortgage sector is spreading, and advertisers are not, repeat NOT, responding to this tougher environment by increasing advertising spending (a crazy bull theory).
Which companies are exposed? All companies that depend on ad revenue, including the major media companies, Google, and Yahoo. Rohan believes, as we do, that online advertising will be hurt less by a recession than traditional media, but won’t be immune. Rohan’s detailed remarks after jump:
RBC’s Jordan Rohan on Bankrate and the ad market:
Channel checks increase our level of concern about 2008, as the mortgage meltdown continues to pressure RATE’s advertisers…We have begun to detect budget cuts from some of Bankrate’s top advertisers. Accordingly, we have reduced estimates below consensus for 2008/2009 and our price target from $55 to $45.
Recent checks support the view that things have deteriorated at the margin over the last 60 days. E-Loan, a top-5 advertiser on BankRate, announced that it is eliminating 67% of its workforce and moving forward with a “substantial reduction of marketing costs.” While these retrenchments will be felt disproportionately in off-line media, we believe online spend could be reduced by 20-50% for some lenders and aggregators. Other major lenders have signaled that reductions to ad-budgets from early 3Q run-rates are likely.
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