Posted by: Aaron Pressman on June 19, 2007
The latest travails at Yahoo (Symbol:YHOO) provide another great learning opportunity on the value added by most Wall Street analysts. Short answer: not much.
After the market closed yesterday, Yahoo said it was booting much-criticized CEO Terry Semel upstairs to non-executive chairman, putting company co-founder Jerry Yang in the CEO chair and making Susan Decker president. Oh, and did they also sort of mention on last night’s conference call that revenue and operating cash flow would be at the low end of previous guidance for the second quarter and the rest of the year? Hmm, yes.
The stock was up a bit earlier but is now off about 1% at $27.76. There’s still plenty of ground to make from April when first quarter results disappointed, guidance was lowered and the stock dropped from $32 down below $28. Not to mention in January when the company said it was finally ready to launch its Panama advertising sales system and, oh by the way, guidance was lowered.
Playing the classic Wall Street game of hide the cookie, Yahoo keeps trying to paper over the bad news with PR and big announcements like the launch date of Panama or the CEO replacement plan. It worked like a charm in January, when Semel came out with Panama’s launch the day after lowering guidance. Mark Rowen of Prudential wrote that “prosperity may really be just around the corner,” Benjamin Schachter at UBS said the lower guidance would prove conservative and investors would be rewarded, Brian Pitz at Bank of America called for “significant revenue and cash flow growth from Panama” and Morgan Stanley’s own Mary Meeker said “2007 guidance should improve with visibility throughout the year.” So far, no good. (Tip o’ the cap to former colleague Eric Savitz, whose blog, Tech Trader Daily, functions like a way back machine for analysts’ opinions).
Investors are still waiting for the prosperity to kick in. On yesterday’s call incoming CEO Yang said panama was working great but display ads and affiliate search were weak, resulting in the lower guidance. Display ads was supposed to be Yahoo’s big advantage over its rivals. If Panama’s growth can’t offset problems in display ads, yahoo may have even bigger problems to announce on its next conference call.
And what about Wall Street’s finest? Bank of America says yang’s return provides a much needed boost, Morgan Stanley says it’s a long-term positive. Where have I heard this song before?