(Updated from Monday, 7:15 a.m. EDT)

With the online advertising market in intensive care, investors will be paying close attention to the nursing staff's report this week. Unfortunately, the chances for a speedy recovery are dimming.

That's the mood among analysts this week as a pair of online advertising bellwethers,

Yahoo!

(YHOO)

and

DoubleClick

(DCLK)

, kick off second-quarter earnings season among Net media companies.

DoubleClick met lowered expectations on Tuesday, but said the online advertising market is still well away from a full recovery.

Yahoo is slated to report after the bell today, and about the only signs of optimism one can find on the Street are that business doesn't seem to be getting worse. Ahead of its report, Yahoo! was trading down $1.54, or 8.6%, to $16.29

Low Bars

Following estimate-lowering comments from Yahoo! earlier this year, analysts are expecting it to run in place at best, and they'll be hanging on to new CEO Terry Semel's every word as he makes his quarterly conference call debut after Wednesday's market close.

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Revenue for the quarter will be $175.1 million, according to the consensus, down from $180.2 million in the first quarter and $270.1 million from a year-ago June. Per-share earnings, excluding certain charges, are expected to be break-even, compared with a penny profit in the first quarter and 12 cents in the second quarter of 2000.

Recovery Room
Yahoo's quarterly revenues

Source: Thomson Financial/First Call

What to Watch

At

Merrill Lynch

, Internet analyst

Henry Blodget is less focused on the numbers this quarter than he is on the words. He says he's waiting for comments from management on the business outlook and strategies for reviving Yahoo!'s business. The most important trends to be looking for, he says, are revenue diversification and the growth rate of spending from non-dot-com customers. Blodget rates Yahoo! a neutral; his firm hasn't been a recent underwriter for the company.

And that leads to the remaining question for the company and the Internet advertising business: What will the rest of the year look like? Blodget says he thinks the second quarter could be the trough for the industry; he's looking for "modest sequential growth" in the third and fourth quarters -- for Yahoo!, revenue of $191 million and $226 million, respectively, adding up to annual revenue of $783 million.

Yet Blodget's cautious outlook is downright giddy compared with that of Scott Reamer of

SG Cowen

. Reamer forecasts revenue of $167 million for the quarter, at the low end of the $165 million to $185 million guidance range that Yahoo! dispensed in April. More disturbing than that, Reamer says that seasonality will raise its ugly head in the Internet advertising market, leading to a very ugly July -- and a third quarter for Yahoo! that will be worse than the second quarter, with revenue of $160 million. (Reamer has a neutral rating on Yahoo!, and his firm hasn't done recent underwriting for the company.)

Though Reamer looked like he was climbing out on a limb in late June when he discussed his sequentially weaker third quarter for Yahoo!, DoubleClick's results Tuesday made his forecast look right on target. After all, as he pointed out in a report Wednesday morning, DoubleClick is forecasting a 22% decline from the second quarter to the third in media revenue, a business that correlates to Yahoo!'s advertising business. "If Yahoo guides toward a more pronounced seasonality pattern in Q3," he writes, "that could come as a negative surprise to the Street and could hurt the stock."

In other words, the patient may still require further surgery.