Perhaps you thought you'd get through the day without another piece of bad news about the Internet advertising market.

Sorry.

On Wednesday morning,

Merrill Lynch

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analyst

Henry Blodget revised 2001 Internet advertising estimates downward for the second time this year. Instead of flat growth over the 2000 online advertising figure of about $8 billion, Blodget now says online advertising will decline 25% to about $6 billion. Net advertising-related stocks were narrowly mixed Wednesday as tech stocks mostly weathered the heavy hit taken by blue-chips.

In a research note about the online ad market, Blodget did express some optimism, if you can call it that. He says he thinks the first quarter will be the worst of it, with ad revenues down 35% from a year ago, compared to his previous estimate of 15%. After gradual improvement in later quarters this year, he says he expects market growth of 20% to 30% in 2002 and beyond.

Coming Down

But given the new numbers, Blodget says that many company estimates for 2001 still appear to be too high, including those for

Terra Lycos

(TRLY)

,

CNet Networks

(CNET) - Get Report

,

iVillage

(IVIL)

and

ValueClick

(VCLK)

. Merrill has managed underwriting for iVillage and

Homestore.com

, but not the others; the firm has a neutral rating on Terra Lycos and an accumulate rating on iVillage. ValueClick is not rated and CNet's rating is under review.

In fact, Merrill's European Internet analyst, Peter Bradshaw, cut his revenue and

EBITDA forecasts for Terra Lycos on Wednesday, in response to the stateside report.

In light of the deterioration of the advertising market, both online and off, Blodget and fellow analyst Jessica Reif Cohen are cutting their full-year revenue estimates for

AOL Time Warner

(AOL)

, but letting stand current full-year earnings before interest, taxes, depreciation and amortization numbers, as well as first-quarter revenue and EBITDA estimates. The full-year revenue estimate is dropping from $40.8 billion to $40.1 billion, while the EBITDA figure remains at $11 billion. Merrill expects revenue of $8.9 billion and EBITDA of $2.1 billion for the first quarter. Merrill Lynch has been an underwriter for the company, and rates the stock a buy.

Confidence

Merrill's confidence in AOL's full-year EBITDA target rests in part on the company's continued insistence that it has the means and the motivation to meet forecasts it gave to Wall Street when the AOL Time Warner deal was first announced in January 2000. In Wednesday's report, Blodget says he's assumed that the America Online flagship online service will institute a $2-per-month subscription increase in the second half of the year. Blodget had speculated before AOL Time Warner's January meeting with analysts that

the company would announce a subscription increase at that time, but AOL Time Warner Chairman Steve Case said that given the attention paid to the megamerger at the time, announcing a rate increase so soon after the merger's close would be "not smart."

Blodget based the advertising estimate cut on major negative preannouncements, such as the ones that came out of

Yahoo!

(YHOO)

and CNet last week. In fact, the bad news just keeps on coming: On Friday, Internet advertising firm

Avenue A

(AVEA)

warned that first-quarter revenue would fall 50% to 60% sequentially from the fourth quarter.