"Since we reduced our estimates on September 4th, we have seen a further slowdown in the economy, particularly in the last two weeks of the third quarter," the J.P.Morgan team wrote. "Weakness continued into October and spread from the U.S. and U.K. throughout continental Europe and Asia. Additionally, dollar strength was greater than expected which will further depress growth rates."

As a result, the securities firm said it changes its model, calling for an annual rate of online advertising growth of 25% in 2008 and 13% in 2009, a reduction of several points from its prior estimates of 28% and 19%, respectively.

"Deterioration of display advertising is more pronounced than expected," the firm noted, adding that costs for premium online advertising inventory are "flat to slightly down."

"Looking forward, we think [cost-per-thousands] will remain depressed and sell-through rates will worsen," the J.P.Morgan team projected. "As a result, we are lowering our fiscal 2008 and fiscal 2009 domestic display estimates to $7.95 billion (11% growth) and $8.45 billion (6% growth) from $8.15 billion (14% growth) and $9.43 billion (16% growth)."

The analysts said the global display ad market should expand 14% in 2008 vs. its prior projection of 16%.

"Search performance held up in the third quarter but we expect ad budget cuts to bleed through," the firm continued. "We continue to see performance-based advertising holding up better than banner advertising. Long tail advertisers continue to allocate additional dollars to search. However, keyword price inflation is moderating. Additionally, we think marketing spend pullback in some segments including travel, telecom, autos, and retail is worsening."

As a result, J.P.Morgan lowered its U.S. search growth estimates to 23.4% in 2008 ad 17.3% in 2009 from prior projections of 27.4% and 25.5%, respectively. The global search ad market now is expected to expand 34% in 2008 vs. J.P.Morgan's prior projection of 36%.

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