Tech Stock News And Analysis

Investors took out their frustration on the company's stock price, which plunged by more than 11 percent to deepen a yearlong slump.

Two of Yahoo's top executives, Chairman Terry Semel and Chief Financial Officer Susan Decker, delivered the bad news during a joint appearance at a New York investment conference that was streamed over the Internet.

"I think in this current quarter we are seeing some slowing (in ads) with perhaps two of the largest sectors, in both autos and financial services," Semel said. "They are still growing, but they are not growing as quickly as we would have hoped in this moment of time."

The drop-off began about two to three weeks ago, Decker said, and will be significant enough to undercut Yahoo's financial performance for the quarter ending Sept. 30. She said it's still too early to tell if the advertising malaise would spread into other industries besides auto and financial services.

Based on recent trends, Decker predicted Yahoo's revenue -- excluding commissions paid to the company's advertising partners -- will fall on the lower end of management's July estimate of $1.12 billion to $1.23 billion.

Assuming Yahoo hits the new target, the company's revenue will be just slightly below the average analyst estimate of $1.18 billion.

But the prospect of a slowdown in online advertising nevertheless rattled Wall Street, which has been operating under the assumption that Internet companies would fare relatively well even in a sluggish economic environment because of the Web's rapid overall growth.

"The Internet, and Yahoo in particular, was supposed to be a safe haven, so this is a little bit of a 'Whoops!' that tends to make people very nervous," said American Technology Research analyst Rob Sanderson.

Shares of Sunnyvale, Calif.-based Yahoo plummeted $3.25, or 11.2 percent, to close at $25.75 on the Nasdaq Stock Market.

The backlash also clipped Google Inc. amid fears that the online search engine leader might find it more difficult to live up to the lofty advertising expectations propelling its stock. Google shares fell $10.88, or 2.6 percent, to close at $403.81 on the Nasdaq.

Investors have grown increasingly disenchanted with Yahoo as it has struggled to gain ground on Google in the lucrative search engine market while trying to maintain the popularity of its Web site as other hot Internet destinations like MySpace.com, Facebook.com and YouTube.com lure more users.

Semel believes those concerns have been overblown, but those assurances haven't been enough to prop up Yahoo's stock, which has declined by 34 percent to wipe out $20 billion in shareholder wealth so far this year.

Much of the stock's earlier erosion occurred in July after Yahoo announced a delay to a much-anticipated improvement to its formula for picking out the ads to display alongside search results. The upgrade, which is supposed to result in more revenue-generating clicks, won't be introduced until next year, missing out the busy holiday shopping season.

Meanwhile, Google keeps processing more search requests -- activity that has enabled it to earn substantially more money than Yahoo. Through August, Google held a 44 percent share of the U.S. search market compared to 29 percent for Yahoo, according to statistics released Tuesday by comScore Media Metrix.