Another Day, Another 27 Points: Yahoo!'s Merry Pre-Christmas
By George Mannes
Staff Reporter
12/6/99 7:19 PM ET
In recent days Yahoo! (YHOO:Nasdaq) has been like Christmas morning for believers in Santa Claus: The presents under the tree are nothing to complain about, but it's just a little difficult explaining the physics of how Santa got his job done.
Over the past month and a half, the Internet portal has seen its stock jump nearly 60%. Last week, it blew past its all-time high of 244 set in the heady days of April. And Monday it rose 11%, up 27 13/16 to close at 280 13/16.
But ask around why, and one doesn't get a single story -- though money managers do give one a sneaking suspicion that patience will reward people who hold off buying the stock until after the pre-Christmas rush. Yahoo!'s takeoff owes a little bit each to e-commerce, international expansion, the S&P 500 and even some plain old momentum investing.
Start with the S&P 500, to which Yahoo! is being added after the close of business on Tuesday. Equity derivatives strategists at Merrill Lynch calculate that on an average basis, companies joining the index see their stock rise at an 8% premium to the S&P in the time period between
their announcement and their actual addition, thanks to the purchases of indexers, quasi-indexers, closet indexers and other hangers-on. In the week since Yahoo! got the official OK, the S&P has been up 2.5% -- and Yahoo! has jumped 32%. "Yahoo! is certainly the outlier on the other side," says Merrill's Silvio Lotufo, with a wee bit of understatement. (Merrill's Henry Blodget has a strong buy on Yahoo!, for which the firm hasn't done underwriting.)
But the S&P doesn't explain everything, because the stock was on an upswing well before the S&P news. Along with individual investors, institutional investors are buying Yahoo! as an Internet stock they don't have to worry about, says Michael Tucker, senior investment analyst with Yahoo! shareholder Federated Investors. "They look for AOLs (AOL:NYSE), Yahoo!s. That was the same thing a year ago," he says. "Things haven't changed."
Now With E-Commerce!
The bull story on Yahoo! does have new elements to it, though. Over the past few weeks, the company has been pushing itself as an e-commerce story, not just an Internet
advertising-supported company. The company has been publicizing a busy season on Yahoo! Shopping, though CEO Tim Koogle is characteristically coy when asked whether people should think of Yahoo! as an e-commerce company. "It's hard to draw a line where advertising stops and commerce begins," he said recently.
No matter. When people think of ecommerce now, they think of Yahoo!, thanks to stats the company circulates like the estimate that 72% of online shoppers visit Yahoo!. "This is a really strong e-commerce season," says Safa Rashtchy, senior analyst at U.S. Bancorp Piper Jaffray. "Who's going to benefit? Well, the ones who've got the most eyeballs." Rashtchy says e-commerce is only one of the forces at work here. Momentum, for example, has taken hold in recent days, he says. Rashtchy has a strong buy on Yahoo!, for which his firm hasn't done investment banking.
Another part of this story is the international angle. Like other Internet companies, Yahoo! has often said that much of its traffic comes from outside the U.S. On Monday, it got some independent numbers to confirm what people already believed, when audience measurement service Media Metrix (MMXI:Nasdaq) released its first European audience measurement results for the U.K., Germany and France. In the month of October, Yahoo! had the biggest reach of any U.S.-based property in each of these countries, and was No. 1 overall in the U.K.
What Next?
The question for investors, though, is whether Yahoo! is worth buying at this price. Tucker says Federated is still buying the stock with new cash inflows because Yahoo! is a core name. But at Yahoo!'s current value in a steady-state environment, his firm probably wouldn't be adding it.
One hedge fund holder, speaking on condition of anonymity, says, "I think it's way too soon to sell it," given the stock's potential.
Another professional Internet investor who doesn't own the stock says he's just not willing to buy it, though. Assuming that the company will have $4 billion in revenue in 2003 and an operating margin of 50%, the investor, who spoke anonymously, says he believes Yahoo! is worth roughly $170 per share on a discounted cash flow basis -- about where it was in mid-October. He doesn't doubt it will be worth $280 some day, but he doesn't feel like holding
the stock while waiting for that to happen.
Well, maybe he'll be able to pick up some shares if people return theirs after Christmas. |
