Thursday was a very rough day for publicly traded directory companies. With Idearc and Yell announcing results that show more weakness in print directories, the two companies’ shares moved sharply downward.

As of this writing Thursday afternoon, Idearc shares had lost roughly a quarter of their value, while Yell had declined more than 15 percent. R.H. Donnelley, which did not announce results today, has been affected as well, losing more than 20 percent of its value. Other global directory stocks suffered to varying degrees, while Yellow Pages Income Fund (Canada) was only down about 1 percent.

Investors appear to have less confidence than they once did that directory publishers can stabilize their print product long enough to drive growth with their online businesses. Also, concern over the impact of a slowing economy on directories is another likely factor, and of course the general mood of the markets doesn’t help.

Idearc reported today that its full-year net print revenues were down 4.2 percent over 2006, and warned investors that 2008 would be a tough year. Yell reported that its U.K. print revenues declined 4.4 percent for the nine months ended Dec. 31, 2007. Both companies reported strong online growth.

Amid such a sharp sell-off, it’s worth reiterating some truths about the directory business. Yes, print revenues are declining, but directories are still a highly valuable source of leads for small, local businesses. The directory industry remains hugely profitable. It seems to us that many investors got into directories based on an oversimplified story (lots of cash, visible revenue, stable customer base). And they seem to be leaving based on similar reasoning (no one uses Yellow Pages anymore, Google has made the medium obsolete, it won’t exist in five years, and so on). While search is a growing factor in local, it cannot yet replace the volume of leads available from print directories, and it may be some time before it can. Drectories will be a major player in local media for quite some time to come.

The Kelsey Report will produce Client Inquiry Briefs summarizing financial results for Idearc, Yell and other companies as results become available. We will also blog in greater detail on the Idearc and Yell earnings announcements as soon as we can.