Investors sent shares of Internet portal Yahoo Inc. (NASDAQ: YHOO) plummeting more than 11 percent on Wednesday, after the firm posted weaker-than-expected earnings and revenue.

Yahoo shares fell $3.78 or 11.8 percent, to $28.31 after the firm said Tuesday that first-quarter net income dropped 11 percent to $142 million.

The results disappointed investors who had hoped Yahoo's new advertising system, Panama, would steer the company closer to its own predictions.

Net income for the first quarter fell 11 percent to $142 million, or 10 cents a share. During the same quarter last year, the firm earned $159.9 million, or 11 cents per share. Analysts polled by Thompson Financial expected a profit of 11 cents a share.

Needham & Co. analyst Mark May downgraded shares of the firm to hold from buy, citing concerns that Yahoo's core business of selling Internet ads seemed to be weakening.

We also view the current valuation as fair and full, particularly given our expectation for normalized earnings growth in the high single-digits to low double digits this year, May said, in reference to the downgrade.

Some analysts feel that more time is needed for Yahoo's Project Panama system to gain traction, however.

Merrill Lynch analyst Justin Post told clients in a note this afternoon that although investors were disappointed with weak revenue-per-search results, the figure w increasing as the quarter progressed, and is expected to be in double digits by the second half of the year.

Some patience is required as US search improvements will likely take a few quarters to rollout, and global Panama launches are ongoing, Post stated. We believe Panama can drive over 30% improvement in RPS, and accelerate Yahoo! growth rate and position with partners.

He maintained its Buy rating on the firm with a $34 price objective.