Times have certainly been tough lately for firms earning key revenues through online advertising, but if they can weather the recent storm, better days do lie ahead, according to analysts.
Since the spring, when the stock market endured a jarring correction, three key online industry players - Yahoo Inc. [Nasdaq:YHOO], DoubleClick Inc. [Nasdaq:DCLK] and Engage Inc. [Nasdaq:ENGA] - have seen their stocks fall as ad revenues have plummeted.
Yahoo in Santa Clara, Calif., saw its stock fall from a high of 200 3/4 points per share on March 27 to 107 on Sept. 12. DoubleClick in New York saw its share price fall from a high of 117 5/8 on March 10 to 37 13/16 on Sept. 12, while Engage in Andover, Mass., dropped from a high of 92 1/2 on March 1 to 9 15/16 on Sept. 12.
Jeff Fieler, an analyst at Bear, Stearns & Co. [NYSE:BSC] in New York, says the fall in ad revenues is directly linked to the drop in the market and has less to do with other issues such as privacy concerns.
Rich Petersen, an analyst at Credit Suisse First Boston Corp. in New York, says he agrees, adding that the failure of many dot-coms has hurt online ad revenues as the companies have dropped out of the picture. But as new dot-coms and many traditional retailers new to the Internet begin to come forward, online advertising will again pick up its growth trend, he says.
Mark Mahaney, an analyst at Morgan Stanley Dean Witter & Co. [NYSE:MWD] in New York, says he expects improved online ad revenues by early next year as a larger pool of traditional retailers joins the fray, taking up the slack from failed dot-coms.
But Jack Stafs, chief economist at Zona Research Inc. in Redwood City, Calif., says that while failed dot-coms have led to much of the recent advertising downturn, the privacy issue is one to watch. The concern, he says, is from consumers who are leery about sharing personally identifiable information when clicking on ads.
"They're afraid that something is going to happen with the information," Stafs says. "More often than not, when you click on these things, they ask for information."