Websites focused on politics and on women’s communities were the fastest growing in the U.S. in 2007, according to comScore’s Internet Review of the Year.
The top-gaining site categories in 2007 reflected trends in both the online and offline worlds, comScore said. “The politics category grabbed the top position, gaining 35%, as the 2008 presidential election and primary season kicked into high gear. Women’s community sites also jumped 35%, as the top two properties in the category, Glam Media and iVillage.com, saw strong growth.”
With the ever-increasing coverage of celebrity news, from Britney Spears’ meltdowns to Anna Nicole Smith’s death, entertainment news sites jumped 32%. Online classifieds had a strong 2007 growing 31% versus year ago, as it continued to impinge on traditional news media’s classified revenues.
According to comScore, several of the top-gaining properties last year were driven by the acquisition of Web entities:
- Everyday Health gained 349% driven by its acquisition of several web sites and the addition of Drugs.com to their network.
- Women’s category leader, Glam Media, grew 213% during the year, due in large part to the addition of several new entities, including Quality Health Network, MyYearbook.com, and LifeScript.com, among others.
- Yellow Book Network grew 137% to 10.4 million visitors, as visitation to Yellowbook.com Sites tripled (up 207% to 4.6 million visitors) and one new entity was added to the property.
- iVillage.com: The Women’s Network gained 27% with the addition of Sugar Publishing, MakeoverSolutions.com, and iWin.com, among others.
- Demand Media added numerous entities under its Demand Media Knowledge and Demand Media Games media titles, which contributed to its 149% growth.
- OfficeMax’s dramatic 199% gain was driven primarily by a December 2007 surge in visitation to its popular viral holiday greetings site ElfYourself.com.
Social networking giant Facebook.com reaped the benefits of opening registration to all users, jumping 81% versus December 2006 to 34.7 million visitors in December 2007. Wikipedia Sites gained 34% to reach nearly 52 million visitors, continuing its reign as the Web’s most popular reference hub. Leading classified site Craigslist.org jumped 74 percent to 24.5 million visitors, while AT&T grew 27% to 30.2 million visitors boosted by its exclusive deal with Apple as carrier for the iPhone.
In 2007, searches at the five major core search engines increased 15 % to 9.6 billion searches. Google Sites again dominated the rankings, with 5.6 billion searches in December 2007, up more than 30% from the previous year. Yahoo! Sites ranked second with 2.2 billion searches, followed by Microsoft Sites (940 million), Time Warner Network (442 million), and Ask Network (415 million).
More than 113 billion core searches were conducted in the U.S. during all of 2007, with Google Sites accounting for nearly 64 billion, representing a 56% share of the market.
The likelihood of credit ratings downgrades of the major monoline bond insurers continues to increase as writedowns mount and sources of capital dry up.
“As the rating agencies have continued to move the AAA capital requirements higher and higher, the markets have taken a more bearish stance towards the sector which, in turn, has effectively cut the sector off from the debt and equity markets where they were planning to raise much of that capital, ” CreditSights notes in Monoline Monitor: Crossing the Credit Rubicon.
As it stands now, barring a regulatory sponsored bank funded bailout, the sector is facing the near-term prospect of multiple downgrades.
In CreditSights’ opinion, “the bailout option being pushed by NY State Insurance Superintendent Dinallo is simply coming too late to the game…we continue to believe the monoline problem will ultimately require a broader multi-faceted regulatory response.”
Adding more fuel to the fire, Pershing Square Capital’s Bill Ackman now estimates potential losses by MBIA at $12.6 billion and Ambac at $11.6 billion. A longtime critic and short-seller, Ackman is backing his claim that the companies could soon be insolvent with a massive “OpenSource” model comprised of hundreds of spreadsheets detailing the monolines’ holdings at risk. Ackman has sent the model to regulators and others, accompanied by a letter.
The Open Source Model estimates that probable losses on the entire universe of 534 ABS CDOs issued between 2005-2007 will be approximately $231 billion, with super senior tranches accounting for approximately $92 billion of this total.
Ackman’s letter and model is available here.
Overnight MBIA posted its biggest-ever quarterly loss of $2.3 billion, and may raise more capital to offset a slump in the value of subprime-mortgage securities, Bloomberg reports in a comprehensive rundown of recent developments.
Oxford Analytica concurs that bond insurers are likely to face more ratings reviews and downgrades as efforts to raise capital fall short. “While bailout efforts are welcome, regulators have few levers to encourage participation by banks. Even if recapitalisation succeeds, monolines have seen a huge drop in confidence from investors — which will take time to restore and could imply serious problems for the future monoline business model. ”
Given the size of banks’ total insured bond portfolios, analysts have estimated downgrades could result in 200 billion dollars in total bond losses and bank writedowns, OxAn says in Monoline downgrades put system at risk.
Much of this exposure may be concentrated: Citigroup, UBS, and Merrill Lynch’s losses could total 70 billion dollars if bond insurers lost their top credit rating, according to Oppenheimer & Co.
Something unpleasant is happening to European mobile network operators (MNOs), Yankee Group says in a new report on the industry.
Customer growth is more elusive, average revenue per user (ARPU) and service revenue are flat or declining, profitability is under pressure and cost-cutting programs are commonplace, the report says. “It’s not a pretty picture.”
If MNOs cannot restore their businesses to good health, the entire mobile communications ecosystem will be threatened.
The report uses Germany as a case study because “it’s big, it’s competitive and it’s representative of what is either already happening or is about to happen in most other European countries.”
Despite their best efforts to stimulate usage, to succeed in the future MNOs must look beyond the services that have served them so well in the past, according to the report Waking a Comatose Mobile Market.
The Yankee Group does not believe future minutes of use (MOU) increases will translate into ARPU gains. “Average revenue per minute (ARPM) will fall faster than the rate at which MOU increases.”
The report, which includes recommendations for MNOs, sees service bundling as a big part of the long-term solution to the industry’s challenges.
The cure for revenue stagnation is to expand to adjacent markets, while simultaneously using subbrands to win tactical day-to-day battles for market share.
In its generally gloomy Financial Risk Outlook 2008, the UK’s Financial Services Authority cautions that efforts to improve the valuation of exotic financial instruments such as structured investment vehicles could backfire if not handled correctly.
The FSA notes that the Financial Stability Forum’s Working Group on Market and Institutional Resilience is coordinating international work on the implications of recent market conditions for valuing assets and liabilities. “There is, nonetheless, a risk that bodies other than accounting standard setters might seek to set what would, in effect, be accounting rules, which could be inconsistent with sound accounting practice. This could lead to reduced market confidence in the accuracy of financial information.”
For example, some might favour applying valuation adjustments made for prudential purposes to financial reporting, or requiring firms’ financial statements to value assets conservatively on the basis of an assumption of stressed, rather than normal, market conditions, or loanloss provisions to be set significantly above losses actually incurred to provide a margin of prudence.
The report provides a good summary of the use of fair value in accounting for financial instruments under International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP).
The FSA sees the following “Priority Risks for 2008:
- Existing business models of some financial institutions are under strain as a result of adverse market conditions.
- Increased financial pressures may lead to financial firms shifting their efforts away from focusing on conduct-of business requirements and from maintaining and strengthening business-as-usual processes.
- Market participants and consumers may lose confidence in financial institutions and in the authorities’ ability to safeguard the financial system.
- A significant minority of consumers could experience financial problems because of their high levels of borrowing.
- Tighter economic conditions could increase the incidence or discovery of some types of financial crime or lead to firms’ resources being diverted away from tackling financial crime.
The comprehensive report addresses such topics as private equity, hedge funds and sovereign wealth funds. It also includes a helpful description of the evolution of the structured finance market.
The rate of growth in broadband household penetration is likely to slow this year, Forrester Research says in a report on Top Consumer Broadband Trends For 2008.
As the market begins to reach a point of saturation, growth in subscribers will taper off slightly during the next year. All told, 2008 will see an estimated 7.6 million new household subscribers in the US, down from 9 million in 2007. Clearly, still an impressive level of growth, but the also the start of a trend of slowed growth in customer base as broadband becomes more firmly established as the typical internet connection format.
In all, broadband market penetration is predicted to reach 58% by the end of the year, or nearly 68 million households. To put this in context: Forrester expects penetration to top out at roughly 70%. At the same time, residential DSL broadband will surpass cable this year.
As a consequence of the growth in higher speed connections, consumption of video content on the internet is expected to grow substantially.
Also, Forrester says, “As consumers rely increasingly on Google and Youtube for content and less on their service provider… ISPs run the risk of being cut out of the content-supported value chain…”
To ensure their place as a critical link in that content value chain in 2008, broadband providers will strike partnerships that allow them to differentiate content that flows through their pipes.
Opportunities for such partnerships have increased with the rise of peer-to-peer (P2P) delivery, Forrester says.
In addition, Forrester does not believe it is likely that alternative access providers such as wireless will pose a real threat to wireline ISPs.
Ultimately, wireline ISPs will face the typical competition in 2008 - each other.
Today’s Commerce Department report that the US economy virtually ground to a halt in the fourth quarter only increases the likelihood of an “official recession” this year. Gross domestic product growth slowed to a meager 0.6% from almost 5% the previous quarter, and was below expectations.
The International Monetary Fund has cut its estimated for US growth from the fourth quarter of 2007 to fourth quarter 2008 to 0.8%, down from 2.6% in 2006-2007, raising the likelihood of GDP dipping into negative territory for at least part of this year.
In its latest World Economic Outlook Update, the IMF says the overall balance of risks to the global growth outlook is still tilted to the downside.
“The main risk to the outlook for global growth is that the ongoing turmoil in financial markets would further reduce domestic demand in the advanced economies and create more significant spillovers into emerging market and developing economies. Growth in emerging market economies that are heavily dependent on capital inflows could be particularly affected, while the strong momentum of domestic demand in some emerging market economies provides upside potential,” the report says.
In a separate Global Financial Stability Report Market Update, the IMF said that deteriorating economic conditions could exacerbate pressures on major financial institutions that have already suffered big losses from the subprime crisis.
A possibly deeper economic downturn in the United States or elsewhere could also serve to widen the crisis beyond the subprime sector, as credit deteriorates more broadly.
Already delinquency rates in 2007 vintages of U.S. prime mortgages (those to the most credit worthy borrowers) are rising faster than in previous years, albeit from low levels, and other forms of consumer credit show signs of deterioration.
The CFOs of American companies seem to be expecting a recession. Their economic confidence plunged more than 10% since last quarter, moving to 19% below where it stood at this time last year, according to a recent survey conducted by Financial Executives International (FEI) and Baruch College’s Zicklin School of Business.
In the 2007 fourth quarter “CFO Outlook Survey” the CFO Optimism Index for the US economy was 56.26, dropping significantly to fall even further past last quarter’s three-year low of 62.85.
This quarter, nearly 100 percent of the CFOs are as concerned, or more, about recession than last quarter, while over 95 percent report being as concerned, or more, about inflation than they were last quarter.
Meanwhile, RGE Monitor has an interesting take on the topic. A recession is usually defined as two consecutive quarters of negative growth. In RGE’s view, “A different meaning is attached to the concept of global recession, in a world where China, Russia and India account for half of global growth and are growing at an annual rate of 11.2%, 7% and 8.5% respectively.”
A 2.5% rate of global growth qualifies as a global recession.
International trade among industrialized nations grew at a healthy pace during the third quarter despite signs of economic slowdown in the US and elsewhere, according to statistics from the Organisation for Economic Cooperation and Development.
In total, exports of goods and services from the 30 OECD member countries grew 4.8%, quarter-on-quarter, while imports grew 4.9%, according to the OECD’s (www.oecd.org) quarterly report.
Year-on-year export value growth for goods and services in OECD countries rose to 15.4%, and import growth rose to 12.5%, reversing the downward trends in both figures in previous quarters.
The most striking shift was the swing in the US trade figures (excluding services). “In the United States, quarter-on-quarter merchandise trade exports grew 4.5%, while imports picked up slightly by 1.2%. On a year-on-year basis, export growth was the highest of the G7 at 10.3% in the third quarter of 2007 while import volume growth remained low at 1.3%.”
Growth in US imports has steadily declined from 7.6% in Q3 2006.
Japan experienced the single largest year-on-year shift in trade balance, according to the report: “Japanese merchandise exports grew 3.1% compared with the previous quarter while imports fell 0.9%. Year-on-year, export volumes were up 6.4% while imports were down 4.9%. “
Germany’s exports grew by 3.4% and imports by 2.6% compared with the second quarter of 2007. On a year-on-year basis, exports rose 6.4% while imports rose 11.2%.
Merchandise trade in the Group of Seven countries grew a seasonally-adjusted 2.6% for exports and 2.2% for imports in the third quarter of 2007 - the highest quarterly growth rate since 2005.
On a year-on-year basis, G7 trade volume growth accelerated to 5.7% for exports and 3.6% for imports
While the property and casualty insurance industry saw strong earnings in 2007 and finished the year with exceptionally healthy balance sheets, this year is likely to prove more difficult, Ernst & Young says in its Outlook for 2008. The first half of 2007 saw net written premium growth of just 0.1%. Considering, though, that 2006 had been the most profitable year for the industry since 1988, this low level of growth was not surprising, E&Y says.
The first half of 2007 saw profits rise an impressive 5.5%, but the annual compound growth rate in premiums is forecast at just 2.6% over the next five years.
One key forecast of the Outlook: “We expect margin compression to accelerate in 2008. While favorable underlying loss trends have enabled the cost of manufacturing to remain steady, core pricing has continued to erode.”
This environment combines with the falling value of the dollar to make a significant acceleration in industry consolidation likely, E&Y says. Indeed, many European firms are already looking to the US as a potential growth area.
E&Y notes that the effort required to implement new International Financial Reporting Standards and new proposals from the Federal Accounting Standards Board is likely to be enormous.
As we look ahead to the possibility of a new fair value type accounting standard, both in Europe and the US, the message is clear: a major, fundamental change in financial reporting for insurers is now on the horizon.
European firms have already been moving to deal with these changes. “… [R]ecent events should be a wake-up call to US insurers that they need to begin preparing for these changes.”
As a search engine, it’s the new kid in this market. It’s technology is strong but it finds it hard to compete in a market where its competitor’s name has literally become a verb.
Which search engine is this? Microsoft Live? Yahoo? Ask.com? Actually, it’s Google and the market in question is China.
Launched in 2000, Baidu is the dominant search engine in China. While American and European users refer to searching as “Googling” something, Chinese users are likely to say they will “Baidu it”.
Pearl Research has just completed its study Google versus Baidu: Search Engine Preferences Among Chinese Youth. The report is part of their Phoenix Generation series which cover the 300 million-strong Chinese youth market. Each study combines one-on-one interviews with online surveys to assess consumer sentiment from the 16-30 year-old market.
According to this latest study, Google will continue to face challenges in competing with the well-entrenched Baidu. While Google may offer superior technology, Chinese youth are attracted to Baidu due to its strong brand recognition, entertainment-focused features, discussion forums and other youth-friendly capabilities. In addition, Chinese view Baidu as a Chinese search engine prompting one interviewee to ask:
Why would I use an American search engine to find out things in China?
Another differentiator for Baidu is its strong focus on entertainment-based content. According to the report, 60% of those surveyed use the Internet to download music or video. Baidu enables users to quickly locate mp3 files.
Yet it’s too soon to write Google off. According to the study, Google enjoys strong brand loyalty from those who use it. Many Google users in China come from those who have been dissatisfied with Baidu. According to one interviewee:
Baidu is a really bad search engine. I can’t seem to find many results when I search. I think Google offers much more search results, but the problem is not many people in China know that.
The Baidu brand continues to enjoy a dominant position in China, one that will not be easily overcome by Google. Yet, with its vast resources and strong technology, it’s too early to write off Google’s chances in this market.
The full report, Google versus Baidu: Search Engine Preferences Among Chinese Youth, is available for purchase.
Despite higher input prices, CreditSights sees a solid outlook for the Food and Beverage industry this year and maintains an “outperform” rating on the sector.
“We expect the issue of higher (and volatile) input costs to continue to burden food producers in the coming year. The protein sector stands most exposed to higher grain costs given their reliance on animal feed.”
Consumer packaged food companies will face cost inflation rates of roughly 7%-8% range for FY08, CreditSights says.
The food versus fuel conundrum is here to stay as heightened demand for corn (for biofuels) puts a strain on supplies of corn and other grains.
Nonetheless, continued price hikes and vigilance for productivity initiatives will help offset cost pressures in 2008, CreditSights says in 2008 Food & Beverage Outlook: Savor or Savior?
Increased brand-building initiatives, awareness/acceptance of rising food prices, and greater home dining trends will continue to draw the consumer (pinched or not) to purchase branded products, CreditSights says.
“With the M&A environment relatively quiet for the past several years and shareholder activists keeping an eye on the defensive and stable free cash flow generating Food & Beverage world, we expect shareholder rewards to tick up in 2008.”
The perceived safe-haven status of the Food & Beverage sector will be more pronounced should the economic picture deteriorate. Accordingly, we are maintaining our overweight recommendation on the sector as a whole.
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