A disappointing sales forecast and a delay in long-awaited technology weighed on Yahoo shares Wednesday, dragging them down 22 percent to their lowest level in two years.

Shares fell $7.04 to $25.20 in anxious trading of 204 million shares, more than 10 times the daily average. The stock has fallen 42 percent from its a 52-week high of $43.66 during January.

The slide followed a second-quarter financial report that disappointed Wall Street analysts with advertising sales figures that fell short of expectations, a symptom of aging technology that has failed to keep pace with the market leader, Google.

Google

Yahoo had planned to update its search technology in the third quarter, but said in its report that it would delay the launch until the fourth quarter. That disappointed many financial analysts, who had hoped improved technology would increase the company’s revenue per search.

Pacific Growth Equities cut its rating on the stock to “neutral” from “buy,” saying the surprising technology delay “tempers any future expectations” for the company’s sales. Analyst Derek Brown told RedHerring.com that Yahoo won’t be able to restore his lost faith simply by introducing the technology by the end of the year.

“I think it’s moved to more of a wait-and-see mode. A question has been opened as to whether the improvements will be as effective as they hoped they would be,” he said.

Google, which has yet to report its quarter’s figures, was little moved by Yahoo’s problem in execution. Its shares fell $4.50 to $398.58 in recent trading. Still, that’s well below its 52-week high of $475.11 in mid-January.

Balanced with a better-than-expected quarterly report from IBM, Yahoo’s outlook left investors with a mixed picture of the technology sector. The overall picture should become clearer as Intel, eBay, and Apple report their quarterly results late Wednesday.

IntelApple

Sales OutlookThe Sunnyvale, California-based company said it expects revenue, excluding partner commissions, in the range of $1.12 billion to $1.23 billion during the third quarter. The $1.17-billion midpoint of this forecast was slightly less than the $1.2 billion analysts had forecast.

Yahoo said sales for the quarter rose 26 percent to $1.58 billion. Excluding cash paid to advertising partners, the company had sales of $1.12 billion, up 28 percent from the year-earlier period. However, analysts had expected Yahoo to report sales of $1.14 billion in the quarter.

Excluding one-time adjustments to the numbers for both years, the company’s profit rose to $237 million, or $0.16 per share, from $209 million, or $0.14 per share, a year earlier. But Yahoo said net income, including the adjustments, fell 78 percent to $164 million, or $0.11 per share, from $755 million, or $0.51 per share, in the year-earlier period.

The year-ago figures included a $552-million gain from the sale of its stake in rival Google. Changes to the way Yahoo accounted for stock option expenses also contributed to the drop in net income.

Nielsen//NetRatings indicated recently that Yahoo’s web sites, which provide search results, news, music, and other entertainment, saw increased traffic in the second quarter. However, the company’s archrival, Google, has a more profitable search engine business.

Contact the writers: TMurphy@RedHerring.com and SMorrison@RedHerring.com