Yahoo Stock Falls to Biggest One-Day Drop

Part of a Yahoo! web page is shown on a laptop computer screen in Portland, Ore., Monday, July 17, 2006. Earnings for Yahoo! will be released Tuesday. Yahoo reports second-quarter results. Analysts expect the Internet company to earn 11 cents per share. (AP Photo/Don Ryan) (Don Ryan - AP)

SAN FRANCISCO -- Yahoo's stock price plunged by nearly 22 percent Wednesday, marking its largest one-day drop ever after the Internet powerhouse postponed a pivotal change to the advertising formula that propels its profits.

The Sunnyvale, Calif.-based company jarred Wall Street with the unexpected delay late Tuesday after announcing solid second-quarter results that mirrored analyst estimates.

On Wednesday, Yahoo Inc.'s shares plummeted $7.04, or 21.8 percent, to close at $25.20 on the Nasdaq Stock Market. The downturn surpassed a 20.9 percent downturn in Yahoo's stock in October 2000 after the company warned investors it was about to be hard hit by the dot-com bust.

The wipeout erased about $10.4 billion in shareholder wealth.

At one point, Yahoo's shares sold for as little as $25.04 _ the cheapest since April 2004.

Here's Yahoo's problem as Wall Street sees it: the owner of the Internet's most trafficked Web site keeps raking in more money as advertisers continue to shift their spending online, but it still lags well behind search engine leader Google Inc.

And now it looks like Yahoo won't be closing that gap as soon as management had promised.

"I can sense the frustration of investors," said Piper Jaffray analyst Safa Rashtchy. "It's discouraging and disheartening, especially because Yahoo didn't really give a good reason for the delay."

Rashtchy is maintaining his "outperform" rating on Yahoo's stock, although he lowered his 12-month target for the shares from $42 to $36.

Other analysts weren't as forgiving. For instance, JP Morgan Securities analyst Imran Khan downgraded Yahoo's stock to "neutral" and expressed doubts whether the company will even be able up to live up to its financial projections for the rest of the year. He also believes Yahoo is destined to fall further behind in its technology race with Google, which will provide an update on its progress Thursday when it is scheduled to release its second-quarter results.

Yahoo's bad news didn't take a big toll on Google, whose shares dipped $4.05, or 1 percent, to close at $399 on the Nasdaq. Google's market value of about $120 billion is now more than three times greater than Yahoo's.

Despite Wednesday's harsh backlash against Yahoo, the company isn't exactly struggling. Second-quarter revenue rose 26 percent to $1.58 billion and, after stripping out windfalls and accounting changes that pushed up last year's results, earnings rose 8 percent to $164 million.