Updated from 12:14 p.m.

Yahoo!

(YHOO)

sent Internet stocks into free fall Tuesday when it warned that its third quarter is looking soft.

Finance chief Sue Decker told investors at the Goldman Sachs Communacopia conference late Tuesday morning that the company expects third-quarter numbers to be in the bottom half of the range Yahoo! provided last quarter. The company cited weakness in financial and auto advertising -- areas to which it is particularly exposed, observers say.

Back in July, Yahoo!

forecast third-quarter revenue of $1.12 billion to $1.23 billion. That projection was itself a disappointment to investors, who sold the stock heavily the next day. The Thomson Financial revenue consensus estimate has fallen to $1.18 billion from $1.20 billion in the intervening two months.

"We aren't talking about a huge miss," says Global Crown Capital analyst Marty Pyykkonen, who rates both Yahoo! and Google buy. "The question is, how broad is the slowdown?

"Yahoo! was talking about three weeks at the tail end of summer," adds Pyykkonen. "So it's hard to extrapolate that into the future."

Yahoo! fell 12% and

Google

(GOOG) - Get Report

dropped 5% in early afternoon trading Tuesday.

eBay

(EBAY) - Get Report

slipped 4%,

Amazon

(AMZN) - Get Report

gave up 3% and

IAC/InterActiveCorp

(IACI)

lost 2%.

Yahoo! said Tuesday that two areas of weakness were the auto and financial services sectors. "Those are two big sectors for Yahoo!," says Pyykkonen.

Of course, the auto industry slowdown is easy to explain, given the steepening job cuts and ongoing retrenchment at Detroit's Big Three.

As for Net advertising peer Google, Pyykkonen says it's hardly immune to any slowdown, but "they are relatively less affected by those two segments."

The news comes just two months after Yahoo! disappointed Wall Street with a soft second-quarter report and delays in a project aimed at bolstering its search technology. Shares in the company are down 35% this year, as Yahoo! struggles to win back investors discouraged by the company's search-market share losses at the hands of Google.