Derek Brown, the analyst at investment bank WR Hambrecht who issued the downgrade, becomes the latest to lower expectations for Yahoo's stock performance in the near future. Just a day ago, Merrill Lynch analyst Henry Blodget cut revenue estimates for Yahoo for the first two fiscal quarters of 2001.
Shares in Yahoo closed down $2.56, or nearly 7 percent, at $34.94 in regular trading Thursday. Earlier, the stock hit a new 52-week low of $31.50.
According to Brown's report, many of the concerns about a possible online advertising crunch during the summer have come true. Internet start-ups have cut back on their advertising budgets. But raising more flags are the advertising cutbacks among traditional advertisers, which also buy heavily on other media such as print or television.
"Well, here we are two quarters later, and it ain't pretty," Brown's report said. "In fact, based on our channel checks and observations from the broad advertising industry, we believe that current market conditions may be more challenging than we had anticipated back in June 2000."
Yahoo had stated in previous earnings releases that the cutback from Internet companies would be offset by traditional advertisers. But Brown's report Thursday, as well as a report last week by SG Cowen Securities, suggests that advertising as a whole is tightening.
"Given the near-term challenges and uncertainties surrounding the company and its market, we suggest that investors remain on the sidelines until 'the smoke clears,'" Brown's report said.