J.P. Morgan: “Nothing But Net” In 2008
January 7th, 2008 — Tom MastermanThis past week, J.P. Morgan released a very detailed, and bullish, analysis of the 2008 Internet sector titled “Nothing But Net.”
Key assumptions underlying the survey:
- US economic growth to remain fairly steady. At this point, this is becoming a contrarian view.
- Advertiser demand for “premium” inventory will increase. Though overall CPMs may increase, industry trends we’ve seen show “premium” CPMs coming under pressure due to increased alternatives from better targeting technology (geo / behavioral) and newer publishers.
Summary:
- Total online ad market growth rate: 21% in 2008, down from 26% in 2007.
- 20% growth in “graphical” ad spend due to more UVs, higher PVs/UV, more ads per page, higher CPMs and higher sell-through.
- CPM growth rate will accelerate by 4% due to scarcity and better targeting capabilities
- Internet will continue to cannibalize Newspaper ad spend, which declined ~8% in F’07
- Large companies will continue to seek out investments in social media (e.g. MSNBC/Newsvine)
- Top 20 ad networks will earn approximately $2B+ in revenue in 2007 (~14% of the display ad market). Ad network revenue to grow 25% CAGR through 2010 (outpacing overall market).
- Acquisition and consolidation to get scale in ad network space. Motivations are: Traffic (scale), Technology (tools), Transactional (buying profitable firms)
- Mobile ads will be like video ads: A whole lot of talk, not a whole lot of $.
