Slowing Ad Revenue Weighs on Phoenix 凤凰新媒体看淡广告收入前景

By newsdoug on March 7, 2012

Phoenix sees lower ad spending The latest sign of an advertising slowdown on the Internet is coming from the high-flying Phoenix New Media (NYSE: FENG), whose investors did some profit-taking in Tuesday trade before the company announced impressive fourth-quarter results that saw its ad revenue double even as it predicted the rate of increase would slow quite a bit in the first quarter. (company announcement) Shares of Phoenix tumbled nearly 6 percent in Tuesday trade, though they bounced back slightly after-hours after the results came out. The company, the new media arm of Phoenix Satellite Television (HKEx: 2008), said its fourth-quarter advertising revenue jumped by just over 100 percent to $24 million, helping to drive a 200 percent increase in its net profit. But clearly the more worrisome element was Phoenix’s outlook for the current quarter, in which it forecast that ad revenue growth will slow to about 70 percent — meaning the rate of increase will slow by about a third. As a result, the company expects its growth rate for total revenues to fall by even more, about 50 percent, to about 35 percent in the current quarter. In fact, I’ve been predicting this slowdown for a while as China’s Internet companies, once flush with investor cash, start to burn through their money piles and either go out of business or cut back sharply on their ad spending. Earlier this week, popular online men’s fashion retailer Masa Maso said it was planning to slash its 2012 advertising budget by 50 percent, as it focused more on getting repeat business from existing customers rather than the costlier proposition of finding new ones through aggressive advertising. (previous post) The slowdown is likely to hit most companies that rely heavily on advertising for their revenue, from search leader Baidu (Nasdaq: BIDU) down the food chain to leading portal Sina (Nasdaq: SINA) and online video and social networking sites like Youku (NYSE: YOKU) and Renren (NYSE: RENN). Baidu previously forecast that growth for its revenue — nearly all of which comes from advertising services — would slow in the current quarter to 75 percent from 82 percent in last year’s fourth quarter. Premier names like Baidu are likely to see the smallest effect from the slowdown, although even Baidu could see its revenue growth rate slip below 50 percent by year end. Meantime, look for much bigger slowdowns at less attractive ad platforms like Youku and Renren, with names like Sina and Phoenix likely to be somewhere in the middle when the nascent downturn starts to accelerate.

Bottom line: Outlook from Phoenix New Media is the latest indicator of a looming ad slowdown, which will sharply curb growth at firms dependent on ad revenue.

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