Barclays Capital Reduces U.S. Advertising Estimates

Barclays Capital’s Media team updated their advertising forecasts for all ad verticals, taking their 2009 and 2010, U.S. advertising growth estimates down to -10% and +1%, resp, from 2009 growth of -5.5%. They rate Google, Discovery, and Omnicom overweight but underweight large-cap media and newspaper stocks. The most bullish estimate is for online search, which is expected to grow 20% in 2009 and the most bearish is for newspapers, which is forecasted to decline 17% in 2009, although Radio has the largest estimate change going to a decline of 13% from a prior estimated decline of 7.4%.

Investment Conclusion - From Barclays Capital
As detailed below, the Barclays Capital U.S. Media and Internet team estimates that 2009 and 2010 total U.S. advertising will decrease 10.0% and increase 1.0%, respectively. This forecast is an update to our October 7, 2008, research report in which we estimated 2009 ad revenue down 5.5%. This compares with Barclays Capital economic team's nominal GDP forecasts of up 0.6% and up 5.2% for 2009-10, respectively, including estimated real GDP down 1.7% in 2009 but up 2.8% in 2010. This compares to the 1991 and 2001 recessions where total U.S. advertising decreased 1.9% and dropped 6.2%, respectively, vs. real GDP decline of 0.2% in 1991 and 0.8% growth in 2001.

Summary
The Barclays Capital U.S. Media and Internet team estimates that 2009 total U.S. advertising will decrease 10.0% to $252.1 billion (vs. our prior down 5.5% estimate) and 2010 will increase 1.0% which is derived from our bottom-up methodology across 11 subsectors of media. This compares to our 2008 estimate of down 5.0% which follows 2007 up 0.4%.

• For 2009, we expect national advertising to outpace local advertising, with national decreasing 8.4% to $152.9 billion but local decreasing 12.2% to $99.2 billion. For 2010, we are estimating national and local advertising up 2.5% and down 1.4%, respectively.

• Our best Overweight-rated stock ideas in U.S. media are Google, Discovery, and Omnicom.

• We would continue to significantly underweight large-cap media and newspaper stocks and remain cautious on stocks with exposure to the broadcast television networks and the local broadcast station groups.

• Internet: We are lowering our 2009 estimate for U.S. Internet advertising revenue from $28.3 billion to $25.1 billion (up 6.1%) based on 4% growth in Display, 20% growth in Search, a 2% decline in Auctions and Other, and 5% growth in Lead Generation & E-mail. For 2010 we believe online advertising growth will reaccelerate to 12%, reaching $28.1 billion, based on 12% growth in Display, 15% in Search, 5% in Auctions and Other, and 6% in Lead Generation and E-Mail. We are not making changes to company s pecific estimates for Google or Yahoo! as they already reflect overall industry expectations.

• Broadcast Television Networks: We are lowering our Broadcast Television Network advertising revenue estimates for 2009 and 2010 to down 10.0% and up 3.0%, respectively. Our previous estimate was for down 8.0% in 2009. We expect the national broadcast advertising marketplace will hold up better than local.

• TV Stations: We have lowered our broadcast TV local and national spot estimates for 2009 and 2010 and now estimate a decline of 15.5% in 2009 and a decline of 1.1% in 2010. Previously, we were anticipating a decline of 8.9% in 2009.

• Cable Networks: We are lowering our estimates for 2009 and 2010 Cable Networks advertising revenue to down 3.0% and up 5.0%, respectively, given the deteriorating consumer economy. Previously, we estimated revenue growth of 1.8% for 2009.

• Newspapers: We are cutting our 2009 and 2010 newspaper advertising revenue forecast to down 17.0% and down 7.5%, respectively, vs. our prior 2009 estimate as of one month ago down 14.0% and down 12.0% as of our ad forecast report in October. Specifically, in 2009, we estimate retail down 11.0%, national down 17.6%, and classified down 27.9% (help wanted down 44.7%, auto down 37.5%, and real estate down 28.8%). In 2010, we estimate retail down 5.0%, national down 7.0%, and classified down 13.5% (help wanted down 15.0%, auto down 12.5%, and real estate down 12.5%).

• Radio: We estimate radio advertising revenue to decrease 13.0% overall in 2009, below our prior estimate of a 7.4% decline, and now expect down 1.7% in 2010.

• Yellow Pages: We have lowered our expectations for 2009 to down 13.0% vs. our prior estimate of down 9.0%, and now expect down 7.0% in 2010.

• Outdoor: We are lowering our estimates for 2009 and 2010 Outdoor advertising growth to declines of 6.0% and 4.4%, respectively. Previously, we estimated flat revenue growth in 2009.

• Direct Mail: Given mounting cyclical pressures, we are expecting direct mail to decline 8.5% in 2009 (vs. our prior down 6.0% estimate) but increase 2.5% in 2010.

• Magazines: We estimate magazine advertising revenue to decrease 15.0% in 2009 (vs. our prior down 12.5% estimate) and decline a further 5.0% in 2010.