4th Quarter Strength Expected For Online Advertising and eCommerce

Last week Kaufman Bros. hosted an online advertising panel made up of the executives from leading ad agencies, SEM agencies and the Online Publishers Association.

The panelists expected a strong 4th quarter for internet search advertising. The SEM agencies expected 10% to 15% Q/Q growth in U.S. during the 4th quarter. Kaufman had modeled its Google (Nasdaq: GOOG) estimates on 8% Q/Q growth and it now reports that those estimates may prove to be conservative.

The ad agencies reported a continued recovery in display advertising in the 4th quarter. The recovery was fueled by strength in the retail and pharmaceutical sectors as well as a modest recovery in finance. Although Yahoo (Nasdaq: YHOO) continues to struggle in the internet search market, it has maintained its place as the leader in display advertising. Kaufman rates Yahoo as a Buy with a price target of $20.

There was growth in the eCommerce sector during the 4th quarter. After a flat 3rd quarter, there was a rise of 10% in eCommerce in the 4th quarter. Amazon.com (Nasdaq: AMZN) benefited from the upward trend as well as increased marketing, lack of sales tax and a free shipping incentive. Amazon rated a Hold from Kaufman with a price target of $155. However, after increases in the 3rd quarter, eBay (Nasdaq: EBAY) saw a decline in user growth in November and December.Still, Kaufman rates eBay a Buy with a price target of $29.

Ad agencies see video advertising as the sector with the biggest opportunity to steal away advertising from other media to online display advertising.

Although solid growth is expected in 2010 for mobile advertising, it is not expected to be a breakout year. An increase in market share for smart phones should fuel growth but mobile ad format issues and a lack of local advertising will limit the growth.