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Dotcom guru predicts harder times for online ad sector

Will bottom out in Q2 or Q3

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Dotcom guru Henry Blodget has warned there is worse to come for the online advertising market.

Blodget, an analyst with investment bank Merrill Lynch, said in a report that the Internet media and advertising sector could hit rock bottom in the second or third quarter of the year.

But the overall decline in Q1 was not as great as expected. Merrill Lynch estimates that online ad spending was around $1.6 billion in the quarter, down 20 per cent sequentially and up four per cent year-on-year.

This was better than the company's previous estimate of a 35 per cent sequential drop. "This is the first time in nine months that the overall market exceeded our estimates, which we last reduced in January," said Blodget.

After the fourth quarter, annual growth is tipped at between 20 per cent and 30 per cent.

The report also said that fewer companies got their hands on majority of the dotcom ad dollars in Q1.

The nine biggest companies managed to grab 84 per cent of spending, compared to 80 per cent in Q4 - AOL is believed to have nabbed around 46 per cent of online advertising cash (compared to 36 per cent in Q4).

"Early predictions of high fragmentation and revenue distribution have proven off the mark," said Blodget.

Merrill Lynch believes the market will drop 25 per cent to $6 billion in 2001. But Blodget remains optimistic: "Longer-term we are still believers in online marketing. We continue to believe the current weakness is the result of a brutal cyclical correction, not a secular downturn."

"We continue to believe that, once the final vestiges of the dotcom bust finally work their way through the system....online advertising should resume more normalised growth in 2002," he said. ®

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