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Yahoo! Booed

Does Mr. Market have a cruel sense of humor or what? Just when we all thought it was safe to wade back into tech stocks, Yahoo! (Nasdaq: YHOO  ) reported second-quarter earnings yesterday. The numbers looked strong at first: sales up 50%, net profit up 570%, and earnings per share up 537%. However, as with pretty much anything involving the market, not all was as it first appeared.

Let's tackle the sales first. The Street had anticipated revenue of more than $881 million. But that's revenue after the cost of acquiring traffic. On that basis, Yahoo! booked only $875 million in sales.

What about net income? Total earnings of $755 million included $563 million in gains from selling shares of rival Google (Nasdaq: GOOG  ) . That puts real net income closer to $192 million. That's still an impressive 71% gain over last year, but nowhere near the 500% you'd see at first glance.

Yahoo!'s outlook wasn't much better, either. While sales for the third quarter and full year are expected to match Street estimates, third-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) are projected to land between $350 million and $380 million. That's below analysts' current $390 million estimate.

Most interesting, though, is the apparent slowdown of search revenue at Yahoo! In questioning management during yesterday's conference call, a Goldman Sachs analyst found that non-search revenue was growing faster than overall revenue, an important change from Q1. The concern, of course, is that the ultra-hot search advertising market is finally cooling off.

Taken together, these less-than-stellar developments appear to have created monumental worries among investors, sending the shares down by more than 11% as I write. But is the news really that bad? Not at all. In fact, the company is approaching 15 million paying Internet subscribers, and branded advertising was up 10% sequentially -- both excellent signs.

Once again, I'm forced to rail against the lunacy of panic sellers. Anyone who invested in Yahoo! should have seen something like this coming. It's a premium company, with a premium market position, and a premium valuation at 50 times trailing earnings. Some shine came off its coat yesterday, and investors took notice. Well, so what? It happens to 'em all. If it didn't, there'd be no bargains in the stock market. Is Yahoo! a bargain? Not yet. But it's a lot closer today than it was last week. And you want to sell? Come on, Fool. It's time to think this one through.

More high-tech Foolishness:

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Fool contributorTim Beyersis the rare Fool who likes the Yahoo! exclamation point. We're not sure whether it's the caffeine or whether he's really that excitable. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile, which ishere.

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