Analyst Downgrades Yahoo

Yahoo Inc. was downgraded Wednesday by Merrill Lynch & Co. analyst Lauren Rich Fine because of the stock’s recent gains and concern over competition from Google Inc.

Fine lowered her rating on Yahoo shares to “neutral” from “buy” in a note to clients. Yahoo is losing market share in Internet search to Google and the run-up of Yahoo’s stock price may limit further gains, she wrote.

Fine, who also has a “neutral” rating on Google shares, said in the note that Internet advertising was growing faster than she had expected. That prompted her to boost 2006 earnings estimates for Yahoo to 73 cents a share from 70 cents. Still, Fine is less optimistic that Yahoo shares will continue to rise.

“The real news was positive,” Fine said. “It’s just not as positive as it used to be.”

Shares of Sunnyvale, Calif.-based Yahoo fell $1.11 to $41.87. Shares of Mountain View, Calif.-based Google rose $1.87 to a record $471.63.

The market for online advertising probably grew 34% in 2005 to $12.8 billion, accounting for 4.7% of total ad spending, said Fine, who is based in New York. That compares with her June forecast of 29% growth.

“It seems to support this secular trend toward people conducting more commerce, community and communication online,” Fine said. “It doesn’t really feel like we’re running out of steam at all.”