Analysts Confident Advertising Will Rise to Pre-Recession Levels

UBS analyst Michael Morris believes the recent ad slump does not represent a permanent change in how marketers reach out to consumers, and says ad revenue will return to pre-recession levels.

Morris based his belief on an examination of trends over the last 30 years, during which time companies consistently spent 2.3 cents on advertising for every $1 of consumer spending, writes the Associated Press (via Yahoo Finance).

Morris expects the third and fourth quarters of this year to show advertising improvement, based on the fact that consensus estimates say revenue at the top 100 U.S. ad spenders will rise 3.0% in 2010.

In the third quarter of last year, ad sales fell 3.6%, with more significant drops following in Q409 and Q109 (at -7% and -9.5% respectively). The precipitous drop began to slow in Q209, down 6.9% compared to the year before, writes MediaPost.

Morris said big ad spenders were overzealous in their cuts between 2007 and 2009. While revenue at the top 100 advertisers fell 6%, those advertisers cut ad spending by 13%. As the economic recovery picks up its pace, Morris is confident those spenders will begin to move toward pre-recession spending habits.

Meanwhile, Deutsche Bank analyst Doug Mitchelson raised his earnings estimates, pointing to the fact that national advertising revenue came in higher than expected in Q3.

Both Mitchelson and Morris raised the third-quarter adjusted profit forecasts for CBS, Time Warner and Viacom.