Suit Against Yahoo Alleges Defective Ad Technology

Yahoo is the subject of a civil suit alleging “operational deficiencies” in the firm’s ad-serving technology caused Yahoo to lose market share and push down its stock price.

The complaint says “Yahoo’s stock rose precipitously on defendants’ positive statements concerning Yahoo’s sales growth, record reported revenues and earnings and strong business fundamentals” and the shares rose to 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 suit by Lerach Coughlin Stoia Geller Rudman & Robbins LLP states. The firm is seeking class-action status on behalf of a wide class of shareholders.

On July 19, 2006, Yahoo’s stock price fell 22 percent after the company announced second-quarter 2006 financial results that were lower than investors expected and analysts downgraded the shares, erasing billions of dollars in market capitalization, according to the suit.

The complaint presents a laundry list of Yahoo’s alleged failings. Suits like these appeared by the hundreds after the dotcom bubble burst. Many companies agreed to settlements rather than go through the expense of a defense.

An e-mail to Yahoo’s media relations staff seeking comment wasn’t immediately returned.