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Advertisers Faced With 'Digital Deflation'

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Advertisers Faced With 'Digital Deflation'

A new report by Morgan Stanley Research provides an overview of the current landscape for digital advertising. According to the report, surging mobile inventory and programmatic buying produced weak display advertising numbers during Q1.

While analysts see pockets of strength in the digital advertising pace, they also see room for downside to the high consensus expectations for the second half of 2015.

Areas Of Strength

According to the report, national TV advertising grew 1.0 percent year-over-year in Q1, beating expectations. Analysts estimate that Google Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)'s YouTube advertising also exceeded expectations, producing about 40 percent year-over-year growth.

Areas Of Weakness

Online advertising was particularly weak in Q1, with 63 percent of companies missing Morgan Stanley’s estimates. In addition, analysts estimate 17 percent growth rate for online advertising in the quarter, a 4.8 percent deceleration from 4Q14’s growth rate.

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Facebook The Exception

Analysts note that Facebook Inc (NASDAQ: FB) was one of the few exceptions to the disappointing Q1 advertising numbers. Morgan Stanley estimates that Facebook alone accounted for about a third of U.S. digital ad growth across their coverage universe over the past five quarters.

Programmatic Deflation?

Analysts believe that programmatic advertising could be one of the drivers behind recent advertising weakness. Despite high praise and high expectations for programmatic ads, the programmatic bottom line has yet to live up to the hype.

Dangerously High Expectations

Following the Q1 weakness, analysts now see downside risk to advertising estimates for the remainder of 2015. While consensus estimates assume acceleration in advertising in the second half of the year, Morgan Stanley specifically mentions Viacom Inc (NASDAQ: VIAB), Scripps Networks Interactive Inc (NYSE: SNI), Discovery Communications Inc (NASDAQ: DISCK), CBS Corporation (NYSE: CBS), Twenty-First Century Fox Inc (NASDAQ: FOXA) and Twitter Inc (NYSE: TWTR) as names at risk of falling short of high full-year 2015 advertising expectations.

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