| Register/Subscribe Home |
|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | DECEMBER 14, 2000 STREET WISE By Amey Stone Is Yahoo! Finally "Near Bottom"? Though crashing ad rates have pushed the stock ever downward lately, some recent events may signal a change from red lights to yellow
In December, several analysts decided to respond to the fact that ad rates, which account for about 80% of Yahoo's revenues, have fallen through the floor. Those collapsing ad rates throw Wall Street's financial targets for Yahoo into jeopardy. W.R. Hambrecht & Co. analyst Derek Brown lowered his rating on the stock to neutral on Dec. 7. He gives Yahoo a "greater than 50-50" chance that it will have to warn Wall Street in the coming weeks that it won't make its fourth-quarter numbers. "The questions today are whether Yahoo is going to meet expectations, and how much will numbers be coming down," Brown says. "A year ago, the questions were by how much is Yahoo going to beat the Street, and how much are numbers going up." Jordan Rohan, an analyst with Wit Soundview, downgraded the stock to hold on Dec. 11 and said his valuation work points to a $25-to-$30-a-share price target. "It's not pretty out there," he says, noting that companies stretching to make their quarterly revenue goals are slashing their online ad budgets. A more optimistic analysis comes from Mark Rowen of Prudential Securities, who said in a note on Dec. 11 that he thinks Yahoo may make its fourth-quarter numbers. But even Rowan concedes there's a good chance Yahoo will tell analysts to dampen expectations for the first quarter of 2001. MOUSE IN THE HOUSE? Indeed, in a sign that investors may have overdone the gloom and doom, Yahoo's stock rallied on Dec. 12. That day, the dot-com announced a deal with ABCnews.com to show video from ABC television news programs. The joint venture sparked rumors that Disney, which owns ABC, might buy or merge with Yahoo, and led the stock to rise as high as $39.50 a share during the day. Most analysts believe such a deal is highly unlikely, in part because Disney shares would tank on such an announcement and also because Disney has bungled its previous Internet ventures, including its acquisition of portal Infoseek.com. Rohan says he believes it's even unlikely that Disney would invest in Yahoo at this point. "Disney has already been bitten by that once," he told clients. Another reason why such a deal is unlikely: A combination with Disney would violate Yahoo's basic business strategy, which is to distribute other people's content on the Internet (sort of like a cable operator), rather than producing the content itself. Merrill Lynch analyst Henry Blodget commented in a Dec. 12 morning note that the deal with ABCnews.com affirms that Yahoo does not need to produce its own content or merge with a traditional media company, as America Online has chosen to do with Time Warner. Besides, Blodget doesn't think Yahoo management would sell at these levels anyway. NOT-SO-BAD NEWS. Given the lack of teeth to the rumors, Brown believes another news event was more key in relieving some of investors' pessimism about Yahoo on Dec. 12. Ironically, he points to a negative news announcement made by leading online advertising firm DoubleClick (DCLKQ) on Dec. 11, when the company reported it will miss fourth-quarter financial targets and, after reporting one quarter in the black, will slip back into the red in the fourth quarter. Where's the good news in that? It seems a three-cents-a-share loss (analysts had been projecting earnings of two cents a share) wasn't as bad as some investors had feared. DoubleClick's stock jumped on the news. And Brown believes Yahoo's shares followed DoubleClick's up, although he thinks investors covering their short positions played a role, as well. It does seem, though, that Yahoo's Dec. 12 rally, while hardly portending a real turnaround for the stock, indicates that a few investors are looking for a bottom point at which to reenter. And it shows that some investors remain confident that Yahoo is still a great business with a strong future. DESTINED TO WIN. On Dec. 12, Jefferies analyst Frederick Moran dared to put out a research note titled "Near Bottom." He lowered his price target on Yahoo from $125 a share to $45, noting that "slower advertising and e-commerce growth has stolen Yahoo's momentum." But he reiterated his buy rating: "Yahoo stands as one of the leading Internet portals in the world, with one of the most widely recognized brand names in cyberspace, boasting the highest levels of reach, viewership, revenue, and earnings of the independent portals." To be sure, Yahoo's rise eroded on Dec. 13, when the stock closed at $34.88 a share, down 2.6% for the day. But the point of maximum pessimism may have passed. Wall Street, which by its nature focuses on quarterly results, is now locked in a debate over whether Yahoo can meet its fourth-quarter projections. The Street is also wondering whether online advertising (and thus Yahoo's stock) will rebound, either in the second half of 2001 or well into 2002. But longer term, analysts agree that Yahoo will be one of the winners on the Web. While downgrading the stock, Brown noted, "We continue to view Yahoo as a core Internet franchise and look forward to the day when the smoke clears." The market is hardly flashing a green light on Yahoo. But given its premier status on the Web and investors' readiness to buy in at mere glimmers of good news, the market could be changing its signal from red to yellow. In this harsh market environment for Internet stocks, that shift is nothing to sneer at.  Stone is an associate editor at Business Week Online Edited by Beth Belton  | | |
 Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Policy |
Printer-Friendly Version
