A group of Yahoo! investors has launched a class action lawsuit against the portal, claiming it concealed falling user numbers attributed to deficient advertising systems.
Yahoo!'s stock market value fell sharply late last year after concern about the effectiveness of its search marketing platform and CEO Terry Semel's leadership of the many-headed company.
According to a statement issued by San Diego-based lawyer firm Leragh Coughlin:
"The complaint alleges that Yahoo!’s stock rose precipitously on defendants’ positive statements concerning Yahoo!’s sales growth, record reported revenues and earnings and strong business fundamentals, which defendants stated would provide further stability and growth, reaching a Class Period high of over $43 per share on January 6, 2006.
"However, concealed from investors was the fact that due to operational deficiencies in its ad technology, Yahoo! was rapidly losing market share to Google and other search engines and Web destinations that would significantly undermine its revenues, earnings and value."
The investors lost money when Yahoo!'s sales forecasts missed estimates.
Many of the company's problems had stemmed from the efficiency of its Overture search marketing platform, over which Google has built a commanding leadership position.
One analyst earlier this year told The New York Times that Google make 4.5 to five cents on every search query while Yahoo! made just 2.5 to three cents. The company updated the platform in February with the roll-out of Panama, which introduced greater contextual keyword matching capabilities.
The lawsuit's plaintiffs argue that claims from Yahoo! misled businesses to take out placements on its advertising service and that the company made false statements about the worth of the pre-Panama service, which was "operationally defective".
But Chris Sherman at Search Engine Land disagreed with the basis for the claim, writing:
"Yahoo!'s alleged drop in market share has nothing to do with the status of its ad platform. If that were the case -- if how well ads are targeted had an impact on consumer-traffic -- arguably Microsoft should be stomping all over Google and Yahoo. It is not."