A number of Internet titans received an across-the-board stock target haircut on Thursday from UBS Securities analyst Ben Schachter, who said a weakening economic outlook is expected to take a toll on display advertising and, to a lesser degree, search advertising.
The reduced 12-month stock price targets for Google, Yahoo, eBay, and ValueClick, as well as a cautious outlook for the Web sector, come as the companies prepare to report their third-quarter financial results in the coming days and weeks.
Google's price target was cut back to $525 a share from $700; Yahoo was bumped down to $20 a share from $28; eBay was trimmed to $18 a share from $28, and ValueClick's target was reduced to $8 a share from $13.
Schachter, in his research note, gave his projections for the fourth quarter, which historically serves as the biggest quarter for consumer-related companies to advertise their products and services. And in sizing up the just-closed third quarter, Schachter blamed a weak September as a spoiler:
While the first two months of the quarter were decent, we believe that September was difficult. And while all our names will be impacted, we continue to believe that GOOG is relatively better positioned than the others.
GOOG, due to its exposure to highly measurable and accountable search advertising, likely held up better during the quarter, and we expect its 3Q results will likely be slightly below consensus expectations, including top-line (revenues) headwinds from a stronger U.S. dollar.
Our checks indicate that the display-advertising market during the quarter was soft, making us more cautious on 3Q results from YHOO and VCLK. eBay recently preannounced details of its 3Q results, with revenues at the low end of the prior guidance on weak consumer trends and FX (foreign exchange) headwinds.
Schachter added that he expects advertising budget cuts to fully kick in during the fourth quarter and through 2009, though he offered a silver lining to the dark economic-storm clouds:
While the macro environment will certainly impact ad spend both offline and online, we think that the continuing shift to online will be somewhat accelerated by the macro weakness.