Economic Outlook 2009- JP Morgan
Macroeconomic Conditions Will Likely Dominate
Performance
2008 was an extraordinary year, as the fallout from the mortgage business nearly
crippled U.S. financial systems. The financial sector underwent a massive
restructuring, with Lehman Brothers filing for bankruptcy, the government seizing
control of Fannie Mae and Freddie Mac, the government bailing out AIG, Goldman
Sachs and Morgan Stanley reorganizing as bank holding companies, and Bear
Stearns, Merrill Lynch, Wachovia, and WaMu, among others, ceasing to operate as
independent entities. Financial sector instability and mark-to-market losses almost
froze the credit market, leading to cash flow problems for both businesses and
consumers. A Zillow.com report estimates that American homeowners will
collectively lose more than $2 trillion in home value by the end of 2008. Meanwhile,
the U.S. auto industry sits on the verge of bankruptcy without a government bailout.
All of these events significantly impacted the overall economy, and we are facing the
worst recession since the ’70s.
The Internet industry is not immune from this recession. We expect significant
revenue growth deceleration (in some cases negative growth) for Internet companies
in 2009. However, we continue to see strong long-term fundamentals with worldwide
Internet penetration continuing to rise, newspaper and magazine businesses
continuing to lose ad spend market share, and consumer dependence on mobile and
Internet devices rising. We believe 4Q’08 and 1Q’09 will be the toughest financial
quarters for Internet companies, as we expect limited credit availability, weaker
foreign exchange currency rates, low consumer confidence, increased
unemployment, and cautious corporate expense control to plague companies.
However, we expect to see the economy stabilize in 2Q and modestly improve in
2H’09. The J.P. Morgan economic forecast calls for (1.6)% Y/Y Real GDP growth in
F’09, with 2H growth accelerating to (1.0)% Y/Y.
- From JP Morgan Report 1/05/2009 Global Equity Research
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