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The Internet sector is trembling. Yahoo (NASDAQ:YHOO) CFO Sue Decker, speaking Tuesday morning at a Goldman Sachs Internet conference, warned that due to weakness in auto and financial advertising, the company’s third quarter results will likely be in the lower half of the company’s previously forecast range of $1.11 billion to $1.22 billion.

“Whether this is temporary, or whether this spills over into other categories, we just don’t know,” Decker said, according to the Associated Press. “We’re going to watch and wait.”

The company repeated its concerns today in an 8-K filing with the SEC, saying:

Over the last few weeks, we are starting to see some advertising weakness in some of the most economically sensitive categories.

This is having an impact on our expected Q3 results, leading us to believe we are likely to report results in the lower half of the business outlook ranges we provided in our earnings release on July 18, 2006 (furnished on a Current Report on Form 8-K on July 18, 2006).

It is too early to tell whether the advertising weakness is due to an economic issue or specific issues in advertisers’ client businesses. Growth is still positive, but it is slower in Q3 than it was in the first half of the year.

My reaction to this is twofold.

One, is anyone really surprised that ads for auto and finance would be slumping at a time when the U.S. auto industry if struggling with the need for massive retrenchment, and there are clear signs of a slowdown in the residential real estate market? No…but…there was always this vague idea out there that Internet advertising could plow right on through any kind of economic weakness. Now, certainly it is possible, as Yahoo suggests, that there could be something about the current circumstances of Ford (NYSE:F) and General Motors (NYSE:GM) that does not reflect larger issues in the economy, but I do not believe that. Advertising is cyclical. Even on the Net.

And the second big takeaway for me is that this shows just how vulnerable the Internet-based content providers are to the economy. Again, there is this notion that the growth rates at sites like Yahoo and Google (NASDAQ:GOOG), and the promise of huge advertising dollars from sites like News Corp.’s (NASDAQ:NWS), and YouTube and Facebook were so large that a slowing economy wasn’t going to make a dent. But that was always a silly idea, as Yahoo has so effectively reminded people today.

Yahoo shares today are down $3.48, or 12.3%, at $25.52. Other Internet stocks are also lower. Google is down $17.92, or more than 4%, to $397.03. Other big decliners include CNET (NASDAQ:CNET), off 7.8%, Monster Worldwide (NASDAQ:MNST), down 7.6% and 24/7 Real Media, (TFSM), down 11.4%.

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Source: Message from Yahoo's Warning: Broader Economy Still Impacts Online Properties