To: Jorj X Mckie who wrote (1439 ) 7/7/2000 12:54:48 PM From: John Pitera Read Replies (2) | Respond to AHAA, does not look like a bad buy, does it. BEAS systemweak dotcom advertising spending will result in slower revenue growth this calendar Q2. Also today, Jefferies & Co. initiated coverage on a number of content sites (TSCM, SPLN, MKTW, QKKA) with HOLD ratings, also citing weak advertising sales in the quarter. YHOO shares are feeling the pain from the call as the shares are off 5% (YHOO 116 21/32 -5 23/32) after receiving their first downgrade since January. The two analyst calls highlight what we pointed out in a May Story Stock; summer is a tough time to be reliant on advertising revenue in the dotcom sector. Of special interest in the DBAB note was their calculation of dotcom spending exposure of the portal sites. They figure that About.com (BOUT) has the highest exposure to dotcom ad spending as they derive about 60% of their ad revenue from dotcoms (as opposed to brick-and-mortar companies); the remainder of their list looks like this: FAIM 40%, LCOS 35%, YHOO 30-35% and AOL 10% (should note that this group only includes stocks under DBAB's coverage and is not nearly comprehensive). Although the brick-and-mortars are spending increasingly more of their ad budgets online, these figures show that even the big, mainstream Internet players are still heavily reliant on dotcom spending. The effects of the weak ad rates will be reflected by not only the aforementioned content providers, but even more so by the advertising firms themselves (DCLK, ENGA, TMPW). What does this teach us? Even though seasonal weakness is taken into account in estimates, it really doesn't pay to be positioned in these stocks over the summer quarter. All three of those ad companies are down at least 50% in Q2, and although the big NASDAQ correction in April accounts for the majority of the slide, all three have also significantly underperformed the NASDAQ since May. Jefferies does however see ad rates increasing significantly in the fall in preparation for the holidays, so that may be when you consider revisiting some of these names
