Not much makes sense in the world of Internet stocks, so the "whisper number" phenomenon shouldn't come as much of a surprise. That's the unofficial figure passed around by stock analysts which represents their actual estimate of corporate earnings.
In the Net stock universe, whisper numbers for profitable companies have become more important than official estimates. So, if a company beats the official number, but falls short of the whisper number, traders often decide the company's not measuring up, and they bid down the stock.
Officially, analysts tend to lowball their estimates so as not to appear out of it if earnings come in way low. But after they release that official estimate, the analysts let favored brokers and customers know what they really think earnings will be.
That's what happened to Yahoo Wednesday, and the whole Net sector suffered for it. TheStreet.com's Internet Sector index fell 5.77 percent, as the Nasdaq dropped 1.82 percent to 3849.93. The Dow, meanwhile, rose 0.35 percent to 11551.10.
After Tuesday's close, Yahoo issued fourth-quarter results that looked good, but failed to measure up to traders' increasingly strict demands. Earnings came in at $44.7 million, or 15 cents per share, right in line with official estimates. Excluding amortization, taxes on employee-option gains and other charges, profits came in at 19 cents per share, which actually beat the Street's official guess. But the whisper number was at about 20 cents a share, so shares took a dive, dropping $39.81, or more than 10 percent, to finish at $357.56.
Yahoo shares often see losses after the release of final-quarter results, but this drop was made worse by an overall climate of profit-taking from huge market gains in the wake of Monday's AOL Time Warner merger announcement.
Yahoo's revenues more than doubled to about $201 million, but it warned that revenue growth will likely drop some as advertisers cut back on spending in the postholiday season.
Yahoo also took the wind out of the Street's speculation that it will counter by acquiring a big media company of its own. Yahoo has no such plans, company officials said.
Meanwhile, AOL and Time Warner kept falling as merger critics continued to pile on. Some analysts came out with projections that the firms' growth will slow after they merge. AOL fell $3.75, or 5.86 percent, to $60.25. Since Monday morning's announcement, AOL shares have fallen 18 percent. Time Warner dropped $6.38, or 7.42 percent, to close at $79.63.