Yahoo shares fall on company's uncertain outlook

NEW YORK (Reuters) - Shares of Yahoo Inc YHOO.O fell nearly 9 percent on Wednesday after the Internet company predicted a tough 2008 amid a weakening U.S. economy.

Yahoo's headquarters are seen in Sunnyvale in a handout photo. REUTERS/Yahoo/Handout

The stock was down $1.81 at $19 in morning Nasdaq trade after several analysts cut their share-price targets due to concerns about the company’s uncertain outlook.

Goldman Sachs analyst Jennifer Watson said she was lowering her price target for Yahoo to $22.50 from $26, citing continued investments amid limited visibility.

Watson kept a “neutral” rating and recommended “investors stay on the sidelines” because of “continued uncertainty about the company’s long-term growth rate and thus valuation.”

While Yahoo warned late on Tuesday that it faced “headwinds” in 2008 and outlined a plan to cut about 1,000 jobs, it said it would take an “aggressive investment posture.”

Watson wrote in a research note: “Given the continued investments in 2008, we are increasingly concerned about the cost of maintaining leadership” in key markets such as e-mail and search.

UBS cut its price target for the stock to $26 from $36, but kept its “buy” rating. RBC cut its share-price estimate to $24 from $30, while keeping its “outperform” rating.

Analysts worry that Yahoo’s large share of the corporate display ad market makes it vulnerable to spending pullbacks.

Yahoo President Susan Decker said that while most advertising sectors, including autos, pharmaceuticals, telecommunications and packaged goods, had a solid start this year, financial, travel, and retail advertisers -- sectors hit hard by the weakening economy -- suffered declines.

Yahoo said fourth-quarter profit fell more than 23 percent to $205.7 million. Overall revenue rose 8 percent to $1.83 billion.

Reporting by Sinead Carew; Editing by Lisa Von Ahn