Merrill Lynch reiterated 'neutral' ratings on Yahoo and Google

Online branded advertising spending will likely outpace search advertising dollars in 2006, but this shouldn't significantly impact Yahoo! or Google, according to a recent report from Merrill Lynch.

The research firm reiterated "neutral" ratings on both Yahoo! and Google.

For 2006, Merrill analyst Lauren Rich Fine believes the share of online advertising dollars going to search won't likely be as high as previously anticipated.

"We still have confidence that Google's continuing ability to take traffic share and improve on monetization will produce higher click-through rates," the analyst said.

"Yahoo will benefit from the stronger branded growth given its leadership and strength in this format."

The analyst reminded investors that negative headlines have been plaguing Google in recent weeks, while Yahoo! is seeing continuing declines in traffic with few near term positive catalysts.

Merrill Lynch estimates U.S. online ad spending growth of approximately 27% in 2006 and 22% in 2007.

"We now believe online branded will have a stronger than expected 2006 such that it could potentially outpace search and regain some share of total online ad expenditures," the analyst said.