Investors Rebuff Overture

Updated from April 23

Overture Services (OVER Quote) slashed 2003 earnings guidance Wednesday, sending its stock plunging 26% Thursday morning.

The pay-per-click search engine operator reduced its fiscal-year earnings forecast by some 39%, cutting its target to a range of 35 cents to 42 cents a share. Wall Street analysts had been forecasting earnings of 63 cents.

The company gave three reasons for the shortfall: lower-than-expected revenue in the U.S., traffic acquisition costs at the high end of the company's previously forecast range, and increased technology and infrastructure expenses, including investments in World Wide Web searching.

These issues represent a mixture of old and new concerns facing investors in Overture. For the past year, Overture's stock has been weighed down by debate over traffic acquisition costs -- the percentage of revenue that Overture pays to Internet properties in return for using Overture's search results on their sites.

On Thursday, U.S. Bancorp Piper Jaffray analyst Safa Rashtchy cut his rating on the stock two notches, to market perform from strong buy. He trimmed his target price to $16 from $36.

"The level of miss yesterday leaves us bewildered, confused, and disappointed," Rashtchy wrote in a note Thursday. Overture shares plunged $4.37 to $12.11 Thursday, putting them within 50 cents of a 52-week low.