Oct. 8--Yahoo's shares plunged Wednesday to their lowest level in more than five years as its core advertising business weakened and investors increasingly doubted that a proposed deal with Google would get done.

Yahoo shares fell 5.6 percent to close at $13.76 after dropping as low as $13.20 in the morning.

"We believe there is a rising possibility that the deal is not executed," Marianne Wolk, an analyst at Susquehanna Financial Group wrote in a note Monday that warned of Yahoo's "deteriorating fundamentals."

Last week, Yahoo and Google announced they were delaying implementation of an agreement that would have allowed Google to sell some advertising on Yahoo's Web sites in the United States and Canada. The deal, which was announced by Yahoo in June, was put together as an alternative to selling Yahoo's search business to Microsoft.

Yahoo estimated the arrangement could add between $250 million and $450 million to its operating cash flow during its first year. But advertisers have complained the deal is likely to raise prices. Major advertisers in the United States and Canada have asked their respective antitrust regulators to block it.

Analysts also are concerned that Yahoo's display advertising business -- the banners and boxes that are not triggered by search terms -- is deteriorating amid the broadening financial crisis. According to eMarketer, display advertising makes up more than 70 percent of Yahoo's advertising

sales in the United States.

Yahoo will announce its third-quarter earnings on October 21.

Meanwhile, Microsoft has shown no interest in renewing its bid for the company. Sources familiar with both companies said Wednesday there are no new talks. During an appearance at the Churchill Club last month, Microsoft CEO Steve Ballmer said the way for Microsoft to improve its position in search advertising is not to buy Yahoo but to "go do it on our own."

Rob Sanderson, an analyst with American Technology Research, said in a note Wednesday that he thought Microsoft might still try again to buy Yahoo, but for much less than the $31 a share it offered Feb. 1. Sanderson wrote that Microsoft's own online advertising business "has not come close to meeting expectations" and noted that a projected annual loss for the business nearly doubled between March and June to $2 billion.

Contact Elise Ackerman at eackerman@mercurynews.com or (408) 271-3774

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