Listen to this article
Yahoo dealt a blow to the internet advertising sector on Tuesday as it warned that demand weakness from economically sensitive sectors such as automobiles and financial services would hold back its earnings in the latest quarter. The internet media company’s shares slumped by 11 per cent on the news on Tuesday.
Other internet stocks were also hit hard as Wall Street digested the implications of a slowdown in the stampede of advertisers to the web.
Speaking in New York, Sue Decker, chief financial officer, said: “We have seen a little weakness in the last few weeks and it has affected our quarter.”
As a result, Yahoo would report results in the lower half of the range it had indicated before, Ms Decker added.
Yahoo blamed a pull-back by advertisers in “some of the most economically sensitive categories” for the warning. Referring to the automobile and financial services sectors, Terry Semel, chief executive officer, said: “These are two great industries under pressure right now.”
Ms Decker added: “Whether this is temporary, or whether this spills over into other categories, we just don’t know.”
The company’s comments suggested a slowdown in particular in its display, or “branded”, advertising business, which has benefited from the shift of big-name advertisers to the internet. Ms Decker said, though, that the search advertising business had also been affected.
The warning follows a recent warning that Yahoo’s overhaul of the technology supporting its search engine advertising was running behind schedule. The overhaul was intended to narrow the gap with market leader Google.
Signs of potential problems in both the search and display advertising businesses have pushed the shares down 35 per cent from the start of this year.
While the comments from Yahoo executives suggested that the company was becoming more susceptible to cyclical economic forces and that the online advertising business may be moving into a more mature phase, some analysts cautioned against reading too much into the news.
“They believe they’re in a secular updraft” as advertising moves to the Web, said Rob Sanderson, an internet analyst at American Technology Research. He added, though, that “if some of their major engines are struggling” it could suggest deeper problems at the company.
As the biggest carrier of online display, or “branded”, advertising, Yahoo’s results are closely watched for signs of the broader health of online advertising.
While it does not disclose results from its different advertising operations, in recent quarters comments from executives have suggested that the display business has produced steady and solid growth as more makers of consumer products and services turn to the Web.
Among other internet stocks to suffer in the wake of Yahoo’s news, Google fell nearly 5 per cent and eBay dropped 4 per cent.