Updated from 8:02 a.m. EDT

Overture Services

( OVER) said late Tuesday that its U.S. affiliation agreement with America Online has ended -- a disclosure that looks certain to mean a rocky Wednesday for Overture's volatile stock.

The pay-per-click search engine operator also, as expected, raised financial targets for the year, based on last week's announcement that it had extended a separate affiliation agreement with

Yahoo!

(YHOO)

for three years.

Shares in Overture, the last remaining big Internet advertising growth stock, have moved sharply up and down this year on news related to its affiliates -- the Internet properties that offer visitors Overture's paid-placement search engine in return for a slice of Overture's advertising revenue.

The company's stock closed at $34.19 Tuesday, up $1.55, but was was being crushed in the premarket Instinet session Wednesday. Recently the shares were losing $8.25, or 25%, to $25.50. The announcement of the AOL agreement's cessation wasn't released until 10 p.m. EDT Tuesday. (For a story about the stock's volatility, click

here.)

Overture short-sellers say the company faces various competitive threats, such as rival search engine Google, which Wednesday morning announced it was replacing Overture as the paid-search provider to AOL's domestic properties. The shorts say Overture will have to hand over ever-larger slices of its revenue to its affiliates. Overture's failure, after missing two different negotiation deadlines, to reach an agreement with AOL supports that scenario; presumably the two parties couldn't agree on the numbers and procedures behind a revenue split.

Meanwhile, believers in the stock say Overture's growing advertising clientele and increasing per-click revenue leave plenty of room for growth for the profitable Internet company.

Tuesday's new 2002 forecast, which reflects the Yahoo! deal's extension beyond its previously expected June expiration, provides ammunition for both camps, though heavier firepower goes to the bulls. On the one hand, Overture says it will be paying a greater percentage of its revenue to affiliates -- 56% or 57%, compared with last week's forecast of 55%. On the other hand, Overture raised 2002 revenue guidance from last week's $473 million to a new range of $530 million to $570 million. Overture raised its net income estimate from $58 million, or 94 cents a share, to a range of $60 million to $65 million, or 97 cents to $1.05 per share.

Overture, which with last week's earnings release continued a tradition of upside surprises, even added guidance for 2003, forecasting revenue of $640 million to $690 million and net income of $35 million to $55 million, or 53 to 83 cents per share. (The company evidently expects greater tax liability in 2003.)

Wednesday's sudden drop in Overture's share price has clear precedents. In February, Overture's shares fell 41% in a single day, as news broke of a lost agreement with EarthLink

(ELNK)

. On last week's news of strong first-quarter results and the Yahoo! agreement, Overture's shares rose 32% in a day.

Overture says it will continue to provide its services to AOL Europe in the U.K., Germany and France as part of a multiyear agreement. But the company will stop working with

AOL Time Warner's

(AOL)

U.S. online properties, including AOL, AOL.com, Compuserve and Netscape (scheduled to phase out in June).

Overture plans an investor conference call for 10 a.m. ET Wednesday to discuss its Tuesday press release.