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Yahoo!'s Shares Fall

Earlier, they rose.

Updated from 7:34 a.m. EDT



shares fell 2.4% early Wednesday as Wall Street hemmed and hawed over its reaction to the latest developments at the Net giant.

Shares rose earlier as investors sighed with relief at the company's promise to roll out a once-delayed search-technology upgrade overcame several pieces of bad news.

But the gains evaporated as trading continued Wednesday, as fans mused over how Yahoo! had missed its third-quarter revenue target, citing "unanticipated challenges." It also guided below the consensus estimate on its fourth-quarter top line.

The hard-hit media company also rolled out a $3 billion stock buyback and said on a conference call that its eagerly anticipated Project Panama upgrade is on track for rollout this winter.

Yahoo! shares recently fell 57 cents to $23.59 after earlier hitting a 52-week low of $23.38.

Terry Semel, Yahoo!'s CEO, said that the interface of Project Panama went live Tuesday, and that the company has brought its first external customer onto the new interface. Panama is intended to help Yahoo! compete with the bully on the Internet advertising block,


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Semel said Yahoo! will maintain a "laser-like focus" on closing the gap on monetizing searches, widening its lead in graphical advertising, and continuing to build its presence in social media, video and mobile devices. He also said that the company counts 30 million users between the ages of 15 and 24 -- a tech-savvy demographic often coveted by advertisers.

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The Sunnyvale, Calif., Net giant made $159 million, or 11 cents a share, for the quarter ended Sept. 30, down from the year-ago $254 million, or 17 cents a share.

Net revenue, excluding the money Yahoo! shares with search-advertising partners, rose 20% from a year ago to $1.12 billion.

Analysts surveyed by Thomson Financial were looking for an 11-cent profit on net revenue of $1.14 billion.

"Although we faced unanticipated challenges in the third quarter," said finance chief Susan Decker, "we continued to generate strong year-over-year increases in both revenue and free cash flow, on top of an already very large base."

But in a conference call held after Yahoo! announced earnings, Decker said a slowdown in advertising spending first announced by the company earlier in the quarter may be felt beyond the initial automotive and financial sectors originally mentioned. She didn't identify any particular sectors that were witnessing a slowdown, however.

The company forecast fourth-quarter revenue of $1.15 billion to $1.27 billion, below the $1.31 billion Wall Street target.

The sluggish guidance means that the stock will not have much upside in the fourth quarter, but holds promise in 2007, provided that Project Panama stays on track, according to some investors. "It's down or dead money for a little while," said Mike Binger, who helps manage Thrivent Financial and owns shares of Yahoo. "But if Panama is good and companies start using it, the growth rate for Yahoo ratchets up again."

The response from prospective customers is promising so far, said Yahoo! COO Dan Rosensweig. "We have previewed it with people in the industry, and the comments are excellent with regard to what we have been able to produce," he said in an interview.

However, Rosensweig said the financial impact from Project Panama on Yahoo!'s revenue will not be felt until the second half of 2007. Yahoo! plans to roll out the system carefully on an industry-by-industry basis. "It will be a slow and deliberate migration plan," he says.

The news comes as investors scour Yahoo!'s numbers for signs the media company has gotten its many problems under control. The company's shares were off 38% this year coming into Tuesday's postclose report, as Yahoo! has repeatedly tempered growth hopes and

fumbled efforts such as Panama.

Back on July 18, when Yahoo! last reported quarterly earnings, the company pulled off the

rare triple of reporting a revenue shortfall, underwhelming Wall Street with weak guidance and admitting that its efforts to catch up with Google weren't going so well. Shares plunged 18% the next day to a two-year low.

In regular trading Tuesday, Yahoo! fell 3 cents to $24.15.