Last week, the question many analysts were asking openly was, why didn't Yahoo purchase YouTube when it had the chance? Today, investors are asking instead whether that chance ever really existed.

While Yahoo continues to make more money -- in fact, $1.58 billion, which is 19% more than it did during the third quarter of 2005 -- its cost of revenues and operating expenses rose, contributing to 37% lower net revenues for Q3 2006 than for Q3 2005. Net income for the quarter just ended was only $158 million, down from $253 million for this quarter a year ago.

Yahoo chairman and CEO Terry Semel just came right out with it yesterday afternoon: "While we are tremendously excited about many things happening at Yahoo!, we are not satisfied with our third quarter financial performance. We continued to grow and believe that we outperformed the graphical market but not at a rate that met our expectations."

In other words, if you look at the tick on a chart, it's not at the angle you'd expect it to be.

Thanks to a couple of factors, gross profit actually did rise - up 13% over the year-ago quarter, to $899 million. But those factors aren't exactly what investors might expect. Although Yahoo is perceived as an advertising company, and even though it continues to tout its upcoming "Project Panama" as the new ad platform that will drive the company, you might be surprised to learn that advertising fees only account for 13% of its revenue.

Marketing services -- where Yahoo helps businesses to gain visibility through such things as "search monetization" -- are its core business. Yahoo reaps $1.37 billion in revenue from such services, versus only $210 million from direct advertising fees.

In the previous three quarters, Yahoo saw annual revenue gains of 34%, 26% and 19%, over the same quarters in 2005. The big problem is cash flow, which describes how readily those revenue gains are being put to work. After gains of 15% and 6% in the previous two quarters of this year, Yahoo's cash flow from operating activities is now down 11% over the prior year's quarter, to $390 million.

Yahoo isn't hurting yet, by anyone's observation; the problem is, it's proving the notion that in a volatile economy, advertising is the most sensitive business to be in. Investment analysts were intrigued enough by Tuesday's news of Yahoo's new ad platform to overlook the company's down-tick in guidance for the fourth quarter.

On Tuesday, Yahoo let it "leak" that Project Panama was now out of the basement, and operational. This gave at least a hopeful rhythm to the company's fourth-quarter guidance, not unlike hearing ragtime jazz at a Louisiana funeral.

But if gas prices return to free-fall, and consumer confidence declines again like it did last September, retailers' reticence to make big investments in getting their message out, could impact Panama - perhaps now doubly so. Whether Yahoo's numbers yesterday had a lasting impact on investors over a 24-hour period, however, may be determined on Thursday, when Google follows up with its quarterly numbers after the close of stocks trading that afternoon.