NEW YORK -- For Web publishers, recovery may be a year away.
Second-quarter results from Yahoo Inc. and DoubleClick Inc. released this week indicate that online advertising remains in a deep slump. Many company executives and industry analysts now see a bounceback coming no earlier than mid-2002 -- but no one's really sure.
"It's just a guess," said Rob Martin, an analyst with Friedman, Billings, Ramsey & Co. "I don't see a catalyst by this year's end, and I don't think anybody does."
In a conference call Wednesday following Yahoo's earnings report, Chief Executive Terry Semel said the ad market "is beginning to ... settle down." Still, he said the company doesn't expect to see an improvement in ad spending until "sometime in 2002."
The online-publishing industry, which ranges from portals to news sites, has already endured wrenching downsizing, as this year's ad slump led to sharp declines in revenue. In recent months, Yahoo, financial-news site MarketWatch.com Inc. and sports site SportsLine.com Inc. all cut staff by more than 10%, blaming weak ad sales.
"This [downturn] is going to be longer in nature than we would have thought," said Gordon Hodge, an analyst with Thomas Weisel Partners. "But there's so much opportunity, given the interactive nature of the medium. We think it's just learning how to crawl, let alone walk."
The first indication of the sector's prognosis came from SportsLine, which runs the sports site CBS SportsLine. Late Friday, the company cut its second-quarter revenue estimate to $14 million, meaning a 35% sequential drop from the first quarter and a 40% drop from a year earlier.
More significant, however, were results from online-advertising leader DoubleClick , which reported earnings Tuesday. Its loss was in line with Wall Street's estimates, and the company stuck with its full-year earnings guidance. But the firm lowered its revenue estimate for the full year and said it may cut more jobs, if needed, to meet its bottom-line goals.
In an ominous sign for online publishers, DoubleClick added that revenue in its media unit -- the business that serves ads for other Web sites -- totaled $33.8 million, down 51% from a year earlier, and down 27% sequentially from the first quarter. The decline in its media business outpaced its overall revenue slide -- total sales dropped 20% from a year earlier to $101.9 million.
Chief Financial Officer Stephen Collins said in a conference call that ad spending is unlikely to rebound this year, and meaningful growth probably won't occur before the middle of 2002.
In a pair of research notes the next day, Merrill Lynch analyst Henry Blodget said that DoubleClick's media business "declined much more than expected," and that overall, the online-ad market was weaker than expected. As a result, Mr. Blodget said he now sees overall online-ad spending dropping as much as 20% sequentially in the second quarter from the first, rather than the 8% drop he had expected.
Yahoo reported a slim profit, excluding various items, of one cent a share, compared with a profit of 11 cents a share a year earlier. Revenue dropped 33% to $182.2 million from $273 million a year earlier.
Just last month, there were hopes that the online-ad industry had sunk as low as it could go.
Figures from AdZone Interactive, a Riverhead, N.Y., research firm, show a 24% drop between January and April, but a slight gain in May and an essentially flat June. Meanwhile, U.S. Bancorp Piper Jaffray analysts Safa Rashtchy and Joshua Meyers said in a June report that the ad market "hit bottom" in April and showed sequential growth in May and June. They were quick to add that they don't believe "substantial growth" has resumed, and that "no clear growth is visible" this year.
In an interview Wednesday, Mr. Rashtchy maintained that while the worst of the ad slump may be over, that doesn't mean spending will dramatically improve by the end of the year. "People equate a bottom with going up again," he noted, reiterating that he doesn't expect measurable growth until 2002.
Companies with sufficient cash reserves who are already leaders in their sector are poised to weather the storm, analysts say, but firms that depend solely on online advertising, especially banner ads, may be in for more rough times.
"It's going to be a question of who's got enough cash to ride out this downturn," said Mr. Hodge of Thomas Weisel.
"Online publishers should look at the offline world and what worked there," added Mr. Rashtchy. "Almost invariably you have a mix of revenue."
Yahoo, for instance, has explored charging for some of its mail and financial services, and has announced further for-fee initiatives. At present it gets about 20% of its revenue from non-advertising sources, up from about 10% in 2000.
Along with expanding into fee-based services, analysts say consolidation and more cutbacks lie ahead.
"I think you'll see more dot-gones, consolidation, vulture capitalists ... if the pickup doesn't start," said Phil Leigh, an analyst with Raymond James & Associates. He cautioned that companies still need to have long-term plans, noting, "Even the Great Depression was temporary."
Copyright (c) 2001 Dow Jones & Company, Inc.