Yahoo tumbles 12 percent on earnings

NEW YORK (CNNMoney.com) -- Yahoo shares tumbled nearly 12 percent Wednesday morning, a day after the world's second-largest online search company reported earnings that missed Wall Street's forecasts.

The Sunnyvale, Calif.-based company announced a decline in first quarter profit Tuesday, a setback following a bullish run for the stock earlier this year.

Yahoo reported net income of $142 million, or 10 cents a share, down 11 percent from a year earlier and below analysts' forecasts of 11 cents a share.

Shares of Yahoo (down $3.73 to $28.36, Charts) slipped 11.5 percent in midday trading on Nasdaq.

"I'm not surprised that Yahoo's stock has taken a hit," said Brian Bolan, an analyst with Jackson Securities. "Investors were being too optimistic and it was present in the stock, but [the stock] has gotten back to the area where it should be, around $28, and I would expect it to stay in that range."

Many had bet that Yahoo's new search tool, Project Panama, would help lift the company's results.

"Other investors, like fund managers, probably believed that Panama was going to be a panacea and make everything go right," Bolan said.

Shares of Yahoo have surged more than 25 percent this year due to optimism about Panama, which the company claims will lead to more relevant results for advertisers and consumers.

Yahoo gave an upbeat report about it's strategy and Panama during a conference call with analysts late Tuesday, despite the company's disappointing results.

Yahoo Chairman and CEO Terry Semel said the company planned to finish expanding Panama into the international market in the coming months.

"We continued to make good progress against the goals we outlined for the company last year and as a result, delivered a solid financial performance for the first quarter," Semel added in a statement.

Yahoo faces increasing competition from Web search giant leader Google Inc. (down $0.71 to $472.09, Charts) and News Corp. (down $0.15 to $25.10, Charts), which has been expanding its online business.

Bolan does not own shares of Yahoo and his company has no investment banking relationship with the company.