Yahoo warns on weakening Web ad sales

A slowing U.S. economy may already be impacting Yahoo Inc.'s Web advertising sales growth, the head of the company said Tuesday, a trend that does not bode well for other ad-supported Internet sites.

"We're seeing some slowing in perhaps two of the largest sectors, both autos and financial services," said Terry Semel, chairman and chief executive officer (CEO) of Yahoo, in response to questions at a Goldman Sachs conference.

Advertising sales from both sectors have slowed down during the past three to four weeks, although both remain on a growth track. "They're growing, but they're not growing as quickly as we would have hoped at this moment in time," said Semel.

The comments sparked a sell-off in Yahoo shares, which plunged 11.2 percent, or US$3.25, to close at $25.75 each during normal trading hours. Other Internet stocks suffered from the comments, with Google Inc. shares falling 2.6 percent to $403.81, and eBay Inc. stock ending 3.3 percent lower to finish the day at $25.95.

Yahoo lowered its third quarter outlook to the lower end of its guidance. The company had forecast revenue, excluding commissions, to be in the range of US$1.12 billion to $1.23 billion this quarter.

A slowdown in advertising growth on the Internet could hurt the development of new Web sites in the near term, since so much content depends on advertising sales to support operations.

But Yahoo was careful to note that it cannot tell whether the current slowdown is a sign of broader trouble or is limited to ads from the auto and financial sectors.

The company also noted that while the weakness in advertising showed up in some of the most economically sensitive categories, it's not necessarily a sign of a slowing U.S. economy.

"It's too early to tell if this is a sign of anything broader," said Susan Decker, head of finance at Yahoo, who attended the conference with Semel.

An audio Web cast of comments by the two Yahoo executives can be accessed via this link: http://yhoo.client.shareholder.com/calendar.cfm?CalendarID=5.