Yahoo! Chat Falls Flat

Yahoo!(YHOO Quote) failed to wow Wall Street with its latest pledge to play catch-up with search leader Google (GOOG Quote).

Some observers had expected Yahoo!'s annual analyst-day meeting to be a catalyst for the stock. But Yahoo! shares continued their steep 2006 slide instead. Shares of the top Web site fell 86 cents to $30.11, putting Yahoo! stock down 23% for the year.

Perhaps investors were responding to the cautious tone taken by the company's top management, or maybe they were disappointed when Yahoo! merely maintained 2006 guidance and failed to offer long-term financial forecasts.

But while investors aren't expecting Yahoo! to usurp Google's top spot in the search market, they want to see better performance from the Sunnyvale, Calif.-based company. That's exactly what Yahoo! is promising to deliver, even as Microsoft(YHOO Quote) steps up spending in search.

"We believe that the opportunity is very, very large for us," says Tim Cadogan, vice president of search. "We believe we can do a much better job for users. We believe we can do a much better job for advertisers."

Still, Yahoo! won't see financial benefits from the improvements, which will be rolled out in the third and fourth quarters, until next year, says Chief Financial Officer Susan Decker.

Yahoo! is betting that new features, such as the enhanced ability to target marketing messages to specific geographic locations, will help it gain a competitive edge against Google.

Even though the Yahoo!'s search business is in Google' shadow, it still attracts a huge number of users. comScore Networks estimates Yahoo! had 1.8 billion search queries in March compared with Google's 2.7 billion. Yahoo! disputes comScore's data that shows it losing market share to Google.

Much of Yahoo!'s growth is going to come from outside the U.S., where Internet use is less prevalent, and from the growing use of mobile devices. One area of interest to Yahoo! and other media and Internet companies is China, where Yahoo! owns a 40% interest in Alibaba.com. Jack Ma, Alibaba's chief executive, says the company would like to go public, but has no immediate plans to do so.