ThinkEquity: WebMD Online Advertising Shines in Q4

WebMD Posts Strong Q4 2008You've read all the press about declining CPMs in Pubmatic's AdPrice Index and the dark, dwindling outlook for online advertising. Truth be told, ad budgets are continuing to come online as premium content sites are showing remarkable resilience in spite of the sputtering economy.

Yesterday, health and wellness website, WebMD, reported better than expected earnings which contained superior results in their online advertising segment. William Morrison, ThinkEquity analyst, writes in his company report this morning:

"Both the online advertising and licensing businesses outperformed relative to our expectations, with publishing falling short of our forecast. Revenue from online advertising was $85.3 million, up 21% Y/Y and compared to our estimate of $78.8 million. Page views were up an exceptionally strong 34%, versus our expectation for 20% growth. However, revenue per thousand page views (RPMs) fell 10% Y/Y to $65.6 and compared to our $67.87 forecast."

It's hard to see revenue per thousand pages as a downside after the health publisher cranked out a 34% year-over-year increase in page views but it's clear that this metric shows an overall decrease in expectations for CPMs. WebMD is continuing to crank out the inventory in order to meet revenue goals and, we would hope, that the exchange model is starting to see some of this premium display ad inventory in the marketplace.

Premium sites aren't going to see the outrageous CPMs of the past by selling direct and leveraging the brand name. On the other hand, in the future, the transparency and insight of the exchange model will unlock new value for publishers and incentive advertisers to bid higher for quality inventory.

Morrison remains cautious about WebMD for the rest of the year predicting reduced margins and the possibility of decelerating revenue which goes against management's view.

Morrison notes:

" According to our analysis, if WebMD comes in line with its first-quarter guidance, and revenue growth in 2Q09 decelerates modestly from 11% growth in Q1 to 10% Y/Y growth in Q2, WebMD would have to accelerate revenue growth to 14.5% in Q3 and 17.5% in Q4. That kind of accelerating growth in the current economic environment is highly unlikely, in our view, and inconsistent with our channel checks."

 

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