Online advertising in China is expected to rebound in the second half of the year as ad spend shifts from traditional media to the internet with search engine Baidu, video site Youku and web portal Sina likely to benefit the most from this expected increase, say analysts at Barclays.
"We believe demand for online advertising in the second half of the year should trend better than in the first half for most (internet) companies," Barclays Equity Research analysts led by Alicia Yap wrote in a report on Thursday. "Although ad demand from the real estate and IT sectors remains sluggish, demand from the auto sector has picked up nicely since the second quarter, rising 10-15 percent year on year."
The auto sector was the top online advertiser in 2011, contributing about 20 percent to overall web advertising in China, followed by internet companies at 16 percent and the real estate sector at 13 percent, according to Barclays' data. It estimates overall online advertising to touch almost 50 billion yuan ($7.8 billion) in 2012, a 32 percent expansion over 2011.
According to the report, big sporting events like the Euro 2012 soccer tournament and the upcoming summer Olympic Games in London will drive more traffic to the web and advertisers want to tap that. Sina, which owns the micro blogging site Weibo with 300 million registered users, is in a good position to benefit from that.
"Given Sina's strong presence in sports as well as its ability to integrate Weibo (ad) campaigns with its portal brand ads, will benefit from the Euro 2012 and London Olympics," Barclays said.
Sina will also gain because of its "premier brand" image in China and its consumers reach, Barclays added. It has a 12-month price target of $72 for the New York-listed stock. This represents an upside of 38.3 percent from current levels.
Fast moving consumer goods (FMCG) companies have already started allocating more ad money to websites, especially to video sites such as Youku, which is the market leader in this space. "We see Youku as the leader and winner in the online video space," Barclays said. It has an overweight rating on Youku and sees an upside of 22.2 percent for the stock price over the next 12 months.
According to Barclays, China's top search engine Baidu already has some of the big-name advertisers but is now trying to broaden that base, which will help grow its ad revenue.
"The long-term growth trajectory for search marketing remains robust, especially with Baidu's continued efforts to aggressively ramp up its small- and medium-size advertiser base," Barclays writes. It forecasts a 54.8 percent upside for the stock over the next 12 months, at a target price of $187.
—By CNBC’s Jean Chua.