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Yahoo warns ad slump will hurt Q3 growth

Yahoo Inc warned on Tuesday that slowing ad growth will depress its third-quarter results, marking the Internet powerhouse's latest letdown. 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."

AD DROPOFF

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 that Yahoo's revenue -- excluding commissions paid to the company's advertising partners -- will fall on the lower end of management's July estimate of US$1.12 billion to US$1.23 billion.

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

Shares of California-based Yahoo plummeted US$3.25, or 11.2 percent, to close at US$25.75 on the NASDAQ Stock Market. The shares clawed back US$0.14 in after-hours trading.

GOOGLE WHIPLASH

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 US$10.88, or 2.6 percent, to close at US$403.81 on the NASDAQ.

Investors have grown increasingly unhappy 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 such as MySpace.com, Facebook.com and YouTube.com lure more users.

Through last month, Google held a 44 percent share of the US search market compared to 29 percent for Yahoo, according to statistics released on Tuesday by comScore Media Metrix.

Semel believes those concerns have been overblown.

However, Semel's assurances have not been enough to prop up Yahoo's stock, which has declined by 34 percent to wipe out US$20 billion in shareholder wealth so far this year.
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