Ahead of the Bell: Online Advertising

NEW YORK—A JP Morgan analyst lowered his online advertising forecast Thursday, citing larger broader economic weakness impacting the Internet sector.

"In the first half of 2008, we have noticed macroeconomic weakness spilling into the internet sector. We feel that this weakness became more pronounced in 3Q and is spreading to international markets," said analyst Imran Khan in a client note.

Khan predicted display advertising will see the most weakness. He cut his estimate for the 2008 U.S. display advertising market to $8.2 billion from $8.6 billion, and his 2009 estimate to $9.4 billion from $10 billion.

The analyst also thinks search advertising spending might decline a bit, but he believes that market "will fare better than the display market given advertisers' preference for performance-based advertising."

Google Inc. is the market leader in search advertising.

He now expects 27 percent year-over-year growth in the U.S. search ad market in 2008, compared with an earlier estimate for 32 percent growth. In 2009, he expects the market to grow 26 percent year over year.

The analyst also lowered his 2009 international search market growth rate to 18 percent from 37 percent, and trimmed his international display market growth rate to 16 percent from 19 percent.