Huge bummer if you were holding FWHT yesterday as the stock tanked on flat earning. Nice overview piece by Reuters is provided below.

Have a great weekend

Todd

UPDATE 2-Growth, pricing fears roil Web search stocks
Thu Feb 24, 2005 06:00 PM ET
(Adds quote on IAB report, closing share prices)
By Michele Gershberg

NEW YORK, Feb 24 (Reuters) - Shares in Internet advertising companies and search engines dropped sharply on Thursday, as investors worried about growth and weaker Web search pricing.

Online ad leaders Google Inc. (GOOG.O: Quote, Profile, Research) and Yahoo Inc. (YHOO.O: Quote, Profile, Research) saw their shares fall more than 4 percent on the Nasdaq after one investment bank downgraded ratings for both companies on Thursday. FindWhat.com (FWHT.O: Quote, Profile, Research) slipped more than 21 percent after reporting flat earnings on Wednesday and search engine Ask Jeeves Inc. (ASKJ.O: Quote, Profile, Research) dropped more than 8 percent.

U.S. Internet ad spending is expected to rise up to 25 percent this year as marketers move more budgets online. But some investors are concerned the breakneck expansion of online advertising over the last two years will slow in 2005, affecting growth at Google, Yahoo and their smaller rivals.

RBC Capital Markets on Thursday cut Yahoo's investment rating to "sector perform" from "outperform" and trimmed its price target to $34 from $43. Google's rating was reduced to "sector perform" from "top pick" and its price target dropped to $200 from $250.

RBC analyst Jordan Rohan said both companies were seeing keyword prices drop in the double digits on a quarterly basis as advertisers strike harder bargains. He also noted high market valuations for both companies, with Google trading at more than 49 times projected 2005 earnings and Yahoo at nearly 66 times earnings this year.

Increased anxiety over the downgrades spilled over into the options market, where volumes were heavier than usual for both Google and Yahoo.

"The downgrade in Google brought down the prospect of future growth rates for the company," said Tim Biggam, chief options strategist at Man Financial. "Although Yahoo is down, options players are expressing more concern and are willing to pay more for puts and calls, pushing up volatility.

ONLINE AD SPENDING SEEN STRONG

The downgrade also followed a joint report from the Interactive Advertising Bureau and PricewaterhouseCoopers that lowered their estimate for third-quarter Internet ad spending to $2.3 billion from a previous estimate of $2.4 billion as more accurate spending data became available.

Peter Petrusky, director of advisory services at PricewaterhouseCoopers, noted that online ad spending has been growing steadily to about $9.6 billion last year. Though the rate of increase would be expected to diminish as the base of comparison grows larger, that shouldn't spark fears over individual companies, he said.

Other analysts also view the share declines as temporary. Online ad spending will remain strong in the United States and has room to grow dramatically overseas, said David Garrity of Caris & Company.

"Corporate advertisers are having trouble staying in touch with their mass markets these days," Garrity said. "There are very few alternatives and the best one you and I can probably think of is paid online search."

Garrity expected any weakness in paid search listing prices to be temporary and said FindWhat.com and Ask Jeeves may have been more aggressive on pricing as they fought for market share. He reiterated a "buy" rating on Yahoo and an "above average" rating on Google.

Google closed $5.06 lower at $188.89. Yahoo fell 64 cents to $31.48, FindWhat dropped $2.50 to $10.95, while Ask Jeeves lost $1.48 to $21.77. (Additional reporting by Doris Frankel in Chicago)

© Reuters 2005. All Rights Reserved.