Updated from 7:51 a.m. EDT

Yahoo! ( YHOO) joined the tech sector's walking wounded, shocking Wall Street with lukewarm second-quarter results late Wednesday.

For its second quarter ended June 30, the Sunnyvale, Calif., Net media giant earned $113 million, or 8 cents a share, on net revenue of $609 million. A year ago, the company earned $51 million, or 4 cents a share, on revenue of $321 million.

The numbers were mostly in line with estimates: The Thomson First Call analyst consensus estimate called for second-quarter earnings of 8 cents a share on revenue of $611 million. But the company guided toward a weaker-than-expected third quarter, and its rich multiple makes investors anxious any time Yahoo! fails to outperform.

For those who were expecting Yahoo! to beat the second-quarter revenue consensus, the disappointment appeared to stem from a shortfall in its core business of marketing services, which encompasses both traditional, branded advertising and paid search. On a conference call with analysts and investors, CEO Terry Semel boosted his growth forecast in that business for the coming quarter, but the damage was done.

After falling more than 10% earlier, Yahoo! shares were recently down $1.62, or 5%, to $30.98. The dip still left the stock some 20% below last Wednesday's 52-week high. A slew of Internet and other technology shares were whacked on the news as well.

Mixed Bag

To be sure, the latest-quarter figures weren't uniformly disappointing. Yahoo! posted second-quarter operating income before depreciation and amortization, or OIBDA, of $234 million, which is comfortably above the $227 million median estimate of Wall Street analysts.

Yahoo! also raised full-year guidance. The company raised its net revenue forecast to $2.46 billion to $2.54 billion from the previous range of $2.41 billion to $2.52 billion. The company now expects OIBDA for 2004 to hit $945 million to $995 million, up from the previous $890 million to $970 million projection.

On a postclose conference call, Semel said the marketing services business would grow more than 35% on an organic basis -- that is, excluding acquisitions -- in 2004. The company had previously forecast an organic growth rate "approaching" 35%.

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) and Veritas ( VRTS) to Conexant ( CNXT) and Emulex ( ELX). On Wednesday afternoon, software titan Siebel ( SEBL) 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) and Google.

Crunchy Slowdown

On Wednesday, Yahoo! cited a rise in organic marketing services revenue for the latest period's growth, along with incremental revenue from acquisitions. Those include the Overture buy that boosted Yahoo!'s fortunes in the rapidly expanding paid-search business.

The company says companywide net revenue grew 42% from the year-ago quarter on an organic basis. Marketing services revenue grew 45% organically in the quarter.

But it seems that the segment didn't grow as fast as bulls had expected. Net marketing services revenue rose 9.2% sequentially to $467.5 million, falling short of forecasts such as that of Youssef Squali of Jefferies. He had forecast that $488 million of an estimated $622 million in second-quarter revenue would come from marketing services.

Fee-based revenue -- such as that from Internet access services offered in tandem with SBC ( SBC) -- amounted to $103.9 million, beating Squali's estimate of $99 million. Meanwhile, Yahoo! pulled down $37.8 million in listings revenue, primarily from the HotJobs employment site, beating the analyst's forecast of $35 million.