Yahoo! stock plummets as CEO says ad sales are slowing

Yahoo! stock has dropped more than 13% today since CEO Terry Semel told investors that ad revenue is slowing in the automotive and financial sectors. The company’s third quarter sales and profits will likely be at the low end of forecasts, the company’s CFO confirmed. Stock in Google, Amazon and eBay also took a hit in the hours after the statements as well.

So many questions could be asked and now seems like as good a time to ask them as any. Are the chickens about to come home to roost? Is the recent explosion of innovation on the web made possible only by an advertising market that isn’t sustainable? Are all the exciting new tools coming online subsidized at best by tried and true sectors like news and the ads bought against it for things like automobiles and financial services? Will a weakened Yahoo! finally get scooped up by Microsoft or another major player in both a vindication of old school computing and preparation for the future?

I think that such statements would be far too drastic. The web is here to stay as a primary communication technology and it’s a great place to advertise. An ongoing US economic downturn would impact every industry negatively and doesn’t reflect a greater than average weakness of the web. If anything, I think there’s still every indication that long term consumer trends point towards greater economic activity online due to decreased overhead, etc.

One thing that is worth considering is wether ad buyers are really being served well in the current market. They may well be adjusting to lower than expected returns. If click fraud is tackled meaningfully, cost per action advertising becomes more important and other innovations in online advertising make it a more positive experience for ad buyers then things could change. The emergence of Microsoft as a player in the contextual advertising market will change the overall landscape as well.

Yahoo! will launch its own new advertising program, code named Panama, that will be released in by the end of this year, according to the company.