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Bad Timing For Yahoo!

It's crushed as investors turn sour on the tech sector.

Updated from 8:33 a.m. EST

An unspectacular performance at



came at a bad time, as investors bailed out of the stock amid the panic sown by


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misery-inducing quarter.

Shares of the Internet titan lost as much as 13% after hours, erasing a four-month rally, as investors chose not to split hairs in the wake of a mediocre quarter and Intel's

big miss. The stock recently traded down $4.90, or 12.2%, to $35.21. Rival


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, which was cut to sell in the wake of Yahoo!'s report at research outfit Stifel, lost $15.91, or 3.5%, to $451.20.

After the bell Tuesday, Yahoo! said fourth-quarter earnings rose 83% to $684 million, or 46 cents a share, while adjusted earnings rose 32% to $247 million, or 16 cents a share. The latter number was either in line with analyst forecasts or a penny shy, depending on which estimate compiler used.

Revenue rose 39% from a year ago to $1.5 billion on a gross basis and gained 36% from a year ago on a so-called net basis, reflecting payments made to the company's search partners, to $1.07 billion. That also matched estimates. Marketing services revenue rose 39% from a year ago to a gross $1.32 billion, while fees revenue rose 38% on a gross basis to $186 million.

"There is nothing there that is a particular problem," says Martin Pyykkonnen, an analyst with Hoefer & Arnett who rates the shares strong buy and doesn't own them. "It's about beating expectations and coming out ahead, and they didn't do that."

In a postclose conference call, Yahoo! execs unveiled uninspiring guidance. The company guided to net revenue of $1.04 billion to $1.1 billion, which means Yahoo! is likely to miss the $1.09 billion Thomson First Call analyst consensus estimate.

Operating cash flow will be $410 million to $440 million in the first quarter and $1.91 billion to $2.06 billion for the year, Yahoo! said. Free cash flow for the year will be $1.4 billion to $1.6 billion.

For the fourth quarter, free cash flow rose to $330 million from $251 million a year earlier, and Yahoo! generated an added $369 million from the issuance of common stock as a result of the exercise of employee stock options. But cash, cash equivalents and investments in marketable debt securities fell to $4 billion at Dec. 31 from $4.76 billion at Sept. 30 as the company spent $1.5 billion on acquisitions.

Earlier this month, Yahoo!'s shares hit a 52-week high following the announcement of Yahoo! Go Mobile, a service that will allow users to conduct searches and access their email and photos as well as look at popular features such as news over cell phones. On Tuesday, shares rose 21 cents to $40.11.

Investors expect Yahoo! to benefit from the soaring popularity of search, but not to the same extent as Google. Yahoo! also is being helped by the continuing shift of advertising dollars from traditional media, including newspapers and television, to online companies, because it lets companies efficiently track their spending.

Forrester Research estimates that U.S. search-engine marketing spending will hit $11.7 billion by 2010, a gain of 170% from 2004. Google, which gets more queries than the next four engines combined, had 39% of the search market in November. That's 5 percentage points more than it had during the same period a year earlier, according to comScore Media Metrix. Meanwhile, Yahoo!'s market share slipped 2.5 percentage points to 29.5%.