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)

Numbers like that are just one of the reasons market observers like ThinkEquity Partners analyst Stewart Barry view Yahoo's stock as a bargain right now.

Wednesday's sell-off wouldn't have been so severe if Yahoo Chairman Terry Semel and his management team hadn't delayed a much-anticipated change in the company's formula for displaying ad links by one to three months.

Investors have been eagerly awaiting the new ad platform, hoping the improvements would enable Yahoo to do a better job displaying short ads. The clicks on those ads, which typically appear as text on the top and sides of Web pages, are critical because they trigger commissions for Yahoo and its partners.

Google's financial growth during the past two years has outstripped Yahoo's partly because it has developed a better formula for determining which ads to display alongside search results _ an advantage that even Semel concedes.

"We are not monetizing as well and it is costing us a lot of money," Semel said Tuesday in an interview.

Because Google closely guards it technology secrets, its advertising formula remains one of the Internet's great mysteries.

But this much is clear: Google has been far more adept than Yahoo at analyzing what people are entering into a search box or reading on a Web page and then quickly deciphering which ads are most likely to gain attention to possibly garner a revenue-producing click.

Although Yahoo holds an advantage over its rival in serving up visual advertising, search advertising for now is the biggest moneymaking channel, which is why Yahoo has been working on fixing its biggest shortcoming for more than a year under a project code-named "Panama."

In May, Yahoo raised hopes by telling analysts it planned to start rolling out the search advertising changes in the third quarter and complete the process in the fourth quarter.

Yahoo now doesn't expect its new approach to be fully deployed until early next year. Semel said Yahoo didn't want to risk a hiccup as advertisers ramped up their spending for the holiday season.

"We feel terrific about (the new formula) and know the importance of it," Semel said. "There is nothing wrong or nothing we are upset about."

Yahoo still boasts the Internet's largest audience with 402 million unique users. But it has been losing favor among investors as Google has widened its lead in the lucrative search market.

Through June, Google held a 44.7 percent share of the U.S. search engine market, up from 36.9 percent at the same time last year, according to comScore Media Metrix. Yahoo ranked second with a 28.5 percent share, down from 30.4 percent a year ago, comScore said.

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AP Business Writer Randy Herschaft contributed to this report.

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