Yahoo! Slumps on Soft Top Line

That said, third-quarter guidance marked a comedown from Wall Street's sky-high expectations. The company expects to see third-quarter net revenue of $610 million to $650 million, which is more conservative than the current First Call consensus of $646 million. The third-quarter OIBDA guidance is in the range of $230 million to $255 million, straddling the $241 million consensus.

Net revenue excludes traffic acquisition costs paid by Yahoo!'s Overture Services unit. That's the ad revenue that Overture shares with third-party Web sites for the privilege of running Overture's pay-per-click search-engine results.

Bear Case

The news comes on the heels of a sobering string of second-quarter sales warnings from one-time tech favorites ranging from PeopleSoft (PSFT Quote) and Veritas (VRTS Quote) to Conexant (CNXT Quote) and Emulex (ELX Quote). On Wednesday afternoon, software titan Siebel (SEBL Quote) joined the sorry procession.

Expectations had been particularly high for Yahoo!'s second quarter, considering the company's performance last time around. Yahoo! shares surged 14% on April 8 following a first-quarter blowout and 2-for-1 stock split.

Indeed, in spite of posting largely in-line numbers, Yahoo! is clearly the biggest tech industry casualty of the young earnings season. The company's remarks are certain to add to the wary tone surrounding the technology stocks that led 2003's surprising rally.

To that end, Wednesday's news comes as investors once again find themselves weighing Yahoo!'s strong growth prospects against its premium valuation. The question of what Yahoo! shares are truly worth harks back to the late 1990s, when the company's shares surged into the triple-digit stratosphere during the dot-com bubble.

Heading into Wednesday's session, Yahoo! shares had surged more than 30% in the last quarter, bolstered by a recovery in the long-suffering Internet advertising market and by the company's success in broadening its product offerings. But some observers increasingly wondered if the company could continue to command a triple-digit price-to-earnings ratio amid rising competition from the likes of Microsoft (MSFT Quote) and Google.