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Will Online Ad Growth Continue in 2008?

Yes, but the economy could impact advertising.

JP Morgan's latest research brief predicts that holdings in US Internet companies will outperform the overall stock market in 2008. This is despite the firm's expectation of slightly slower revenue growth for the online sector.

"We expect revenue growth to decelerate to 21.2% in 2008, from 25.6% in 2007," wrote Imran Khan, analyst at JP Morgan, in the report. "We are projecting 34% earnings growth for our coverage universe, compared to 8% for the S&P 500."

As part of its forecast, JP Morgan said that growth in US paid search ad revenue—currently the largest segment of US online ad spending—would fall to 31.9% in 2008, down from 36.8% in 2007.

Nonetheless, the tone of the report was hardly doom and gloom. Mr. Khan wrote that non-US revenue might pass domestic receipts for firms with an international reach, and that CPMs should rise this year.

Unlike JP Morgan, eMarketer expects growth in US online ad spending growth to rise slightly in 2008.

David Hallerman, senior analyst at eMarketer, predicts that online ad spending will grow by 28.5% in 2008, compared with 26.8% in 2007. eMarketer also projects that US spending on paid search advertising will increase by 27.5% in 2008, compared with 26.8% in 2007.

"However, the current economic uncertainty partially clouds the crystal ball," Mr. Hallerman said. "So, while eMarketer also sees rising CPMs, the financial ability of all advertisers to buy big into the online market is not completely certain."

The eMarketer Search Engine Marketing report will be published this month. Click here to be notified when it is released.

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