NEW YORK – Shares in Internet advertising companies and paid search engines fell sharply on Thursday due to weak results from one Web marketer, concerns over Web search pricing and a downgrade of two top market players.
RBC Capital Markets on Thursday reduced its investment ratings and price targets on Internet advertising leaders Yahoo Inc (YHOO) and Google Inc (GOOG), citing pricing weakness of advertising keywords for both companies.
The downgrade followed flat results for FindWhat.com (FWHT) and a report from the Interactive Advertising Bureau (search) that lowered its estimate for third-quarter Internet ad spending to $2.3 billion from a previous estimate of $2.4 billion.
The IAB did not immediately elaborate on the revision.
Shares in Google and Yahoo fell more than 4 percent on the Nasdaq, while Findwhat slipped more than 21 percent and search engine Ask Jeeves dropped more than 8 percent.
But some analysts viewed the declines as temporary. U.S. Internet advertising spending is expected to grow as much as 25 percent this year as marketers move more of their budgets online to catch consumer attention.
"The steadily diminishing efficacy of traditional advertising channels such as broadcast television leave corporate advertisers with little, if any, alternative to paid online search as the most effective means of engaging and retaining their target market," wrote David Garrity, analyst at Caris & Company, in a research note.
Garrity said he expected any weakness in paid search listing prices was temporary and noted that FindWhat.com and Ask Jeeves may have been more aggressive on pricing as they fight for market share. He reiterated a "buy" rating on Yahoo.
Google slipped $8.75, or 4.5 percent, to $185.29. Yahoo fell $1.63, or 5.1 percent, to $30.49. FindWhat dropped $2.89, or 21.5 percent, to $10.56. Ask Jeeves lost $2.00, or 8.6 percent, at $21.25.