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News
Online ad outlook worsens
January 8, 2001: 11:53 a.m. ET

Blodget adjusts revenue growth outlook to flat in 2001, but expects recovery
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NEW YORK (CNNfn) - The outlook for growth in Internet advertising, in many ways the economic battery powering thousands of Web sites, may be worse than previously anticipated due to shrinking spending by dot.coms and a weaker overall advertising environment, Merrill Lynch said on Monday.

In a note to clients, influential Merrill Lynch Internet analyst Henry Blodget further trimmed his estimate for the online advertising market in 2001 to $8 billion, or about even with one year ago.

That compares to a previous estimate of $9 billion, or 15 percent growth. Blodget added that six months ago, the firm expected growth of 30 percent-to-40 percent. They continue to expect market growth of about 30 percent  in 2002.

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  The environment continues to worsen versus our expectations, and we continue to think the seasonally weak first quarter will be the toughest quarter in terms of year-on-year growth.  
     
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  Henry Blodget
Analyst
Merrill Lynch
 
"The environment continues to worsen versus our expectations, and we continue to think the seasonally weak first quarter will be the toughest quarter in terms of year-on-year growth," Blodget wrote in the note.

The problems in online advertising escalated last year as startups, which had been eager to liberally spend investors seed money to build audience and customers rolls, began to run short of funds. The sudden change in the online advertising market has forced many Internet companies reliant on ads to reorganize their operations, cut jobs or simply close up shop.

Indeed, on Sunday, the New York Times said it would cut 17 percent of the work force at its money-losing Internet unit, New York Times Digital, due to slowing growth in online advertising.


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The situation is exacerbated but the slowing U.S. economy, an environment under which bigger, more established businesses are forced to think twice about where they spend their advertising dollars.

Still, Blodget sees a possible upswing in the market later in 2001.

"We continue to expect the market to strengthen in the second half of the year, when the impact of the dot.com bubble has worked its way out of the system," he said.

"The stocks have led the market on the way down, and we expect them to lead it on the way up," he added. "This said, we are not looking for significant appreciation until the market stabilizes versus expectations  (stops getting worse)." graphic

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