Goldman Sachs forecasts U.S. online advertising to climb 10% in 2012, down from previous prediction of 13% due to tapering economic growth, predicts advertisers to curtail spending
October 12, 2011
– The U.S. online advertising market is heading for a slowdown as a struggling economy crimps marketing budgets, according to a Goldman Sachs forecast sent to investors Wednesday.
Under its revised forecast, Goldman Sachs ( GS - news - people ) now expects U.S. online advertising to climb 10 percent next year instead of its previous projection calling for a 13 percent increase. For the current year, Goldman Sachs foresees a 14 percent gain in online advertising.
Through the first half of this year, U.S. online advertising totaled $12.1 billion, an 11 percent increase from the same time last year, according to the Interactive Advertising Bureau.
Goldman Sachs dimmed its outlook because the U.S. economy has been sputtering for most of the year. As economic growth tapers off, advertisers will curtail their spending too, the Goldman Sachs analysts reasoned.
Other projections are rosier. The research firm eMarketer expects U.S. online advertising to increase 18 percent next year after rising by about 20 percent this year.
Goldman Sachs still expects Internet advertising to be a bright spot in the overall ad market. It predicted U.S. advertising across all media will edge up just 2 percent next year, down from the previous estimate of 4 percent.
In an indication that the market was faltering during the summer, The New York Times Co. ( NYT - news - people ) already has warned it suffered a slight decline in digital advertising during the quarter ending in September instead of the slight increase it anticipated.
WebMD Health Corp. ( WBMD - news - people ), an online heath advice service that relies on online advertising, last week said its revenue in the latest quarter will land at the low end of its projected range of $135 million to $140 million.
"We believe that if the overall advertising environment were more robust, we would not be seeing the same level of online advertising deterioration," Goldman Sachs said in its report.
Investors may get a better handle on the state of online advertising Thursday when Internet search leader Google Inc. ( GOOG - news - people ) reports its results for July to September. Besides dominating online search, Google also runs the Internet's largest advertising network, and it generates most of Google's revenue.
Analysts surveyed by FactSet expect Google's revenue to climb by about 30 percent, compared with last year's third quarter, slightly below the 32 percent increase Google posted for its second quarter.
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