SAN FRANCISCO - Yahoo! ( YHOO) shares reached a five-year low, exacerbated by analyst warnings that a softening display advertising market could hurt the company.

The Internet giant's stock fell as much as 9% before regaining ground in recent trading to $14.23. The stock is now 58% off its 52-week high.

Like most tech companies, Yahoo! is feeling the consequences of a shaky market still reeling from a meltdown in the financial sector.

But Brian Pitz, an analyst for Bank of America, points to a contraction in display advertising as one of Yahoo!'s biggest ailments.

"Our channel checks indicate the market for display ads, particularly branded or CPM-based ads, continues to worsen beyond our prior expectations and from second quarter levels," Pitz wrote in his latest research. "Given the current market environment, we believe advertisers are likely to hold back discretionary brand-building dollars in favor of measurable search and performance-based display advertising."

Pitz noted that spending in financial services and auto, which make up a significant portion of Yahoo!'s display revenue, are down.

He estimates that online image-based advertising spending in the U.S. for financial services will fall 38% in the third quarter from a year ago. That compares to a 27% drop in the second quarter.

Although he expects spending to grow in the auto sector in the third quarter by 17%, that still marks a substantial drop from its 45% growth in the second quarter.

"While auto manufacturers have significantly ramped their online ad spend over the past few years, we note recent comments from auto manufacturers such as General Motors ( GM) which indicate cutbacks in digital ad spend," he wrote. "We believe the secular tailwinds are not enough to protect online advertising from the effects of the current macroeconomic headwinds."

Pitz cut his price target on Yahoo! to $16 from $24.

Rob Sanderson, an analyst for American Technology Research was also down on the stock, cutting his price target to $22 from $33, although he maintained his buy rating.

"Yahoo!'s premium display business appears to be facing significant headwinds given the slow-down in several key verticals and general caution among advertising customers," Sanderson wrote in his research. He also pointed to a tough macro environment and Yahoo!'s deteriorating market share in the search business as reason to be cautious on the stock.

Yahoo! has long been considered a leader in display advertising, with the potential for huge growth. The Interactive Advertising Bureau, for instance, had forecast display advertising to grow to over $18 billion in 2010 from $12 billion in 2007.

Google ( GOOG) made a wager on display advertising growth as well when it purchased DoubleClick for $3.2 billion. But it is less exposed than Yahoo! because of its heavier reliance on search advertising.

Yahoo! continues to invest in display advertising. In fact, it recently revamped its advertising platform, called APT, to better streamline the process for publishers and advertisers to buy and sell display ads.

But Pitz maintained that while the move would help Yahoo! in the long term, "we believe Yahoo! may struggle to get widespread adoption of APT in the current weak display environment."

Investors might have given Yahoo! a pass in light of all the turmoil in the economy. But many find themselves in a less forgiving mood because of what they see as past blunders, including the failed merger agreement with Microsoft ( MSFT) this summer, which drove down Yahoo! shares.

A search advertising deal with Google, which was estimated to generate $800 million in annual revenue for Yahoo!, is also on shaky ground. Both companies are holding off on the deal, to allow the Justice Department more time to look into it.

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