To YaHoo...or "Poo~Poo" YaHoo...than is the question ;-)
biz.yahoo.com
Investors grow wary ahead of Yahoo earnings
(UPDATE: New throughout)
By Andrea Orr
PALO ALTO, Calif., July 7 (Reuters) - As Yahoo Inc.(NasdaqNM:YHOO - news) prepares to release earnings on Tuesday, it is looking less like the new economy giant with the golden touch and more like so many dot-coms hard pressed to justify their stock prices.
The concerns centre not so much on Yahoo's second quarter earnings, which are expected to easily double from last year's levels, but on whether even that robust growth warrants the sky-high valuation Wall Street has given the company.
Yahoo has already felt the wrath of investors souring on the Internet sector. Even after being sliced to less than half its all time high, its stock remains at a level analysts say may be much too high, given the inevitable slowdown in its rate of growth and the pullback in ad spending by other dot-coms, which make up a large chunk of Yahoo's revenues.
On Friday, Andrea Williams Rice, an analyst with Deutsche Banc Alex Brown, downgraded Yahoo to a ``buy'' from a ``strong buy,'' saying that not even this popular Internet destination was immune to the pullback in dot-com ad spending.
Yahoo shares, which typically rally ahead of earnings, fell 5-7/8 to close at 116-1/2, down from an all-time high of 250.
Williams Rice's concerns were echoed all over Wall Street, where analysts who have grown accustomed to seeing the company surpass the rosiest forecasts, said upcoming quarters would be more challenging for Yahoo.
``For once, it's a difficult call for Yahoo,'' said Bob Walberg, an analyst with Briefing.com. ``The key is going to be their revenue number and the guidance they give us in terms of dot-com ad revenues. The perception is that the overall weakness in the dot-com universe is going to impact even the largest portals and that does not bode well for earnings.''
Yahoo is expected to post earnings of 10 cents a share for the second quarter, according to First Call/Thomson Financial. In last year's second quarter, Yahoo posted earnings of $28.3 million, or 11 cents a share, not accounting for a 2-for-1 stock split in February of this year.
GROWING PAINS
The slowdown in online advertising by other online companies has been visible all over the Net, where scores of companies have closed up shop in recent months and others have slashed their marketing budgets in an effort to conserve cash.
NBC Internet Inc.(NasdaqNM:NBCI - news), a portal similar to Yahoo but not as big, warned last month that its sales would fall short of expectations due mainly to weak ad sales. Yahoo is clearly in a stronger position than most companies. With a larger audience than any consumer portal, it remains a smart choice for advertisers looking to reach a lot of eyes.
But analysts seem increasingly certain that even Yahoo will feel the advertising slowdown, if not in the current quarter, then later this year.
W.R. Hambrecht analyst Derek Brown notes that companies like Yahoo have been reducing their dependence on dot-com advertisers in favour of ``real world'' companies like Procter & Gamble Co.(NYSE:PG - news), but the shift may not come quickly enough.
``The big question is will these old economy companies spend enough to compensate for the slowdown in online spending? My gut feeling is there is likely to be a gap.''
These new worries about Yahoo's revenue base come at a time when Yahoo is also dealing with growing pains as it becomes a more mature company with a slowing rate of growth.
After several quarters of earnings doubling, tripling or even quadrupling from the year-ago period, Yahoo's outlook now is decidedly more constrained.
Most analysts expect earnings will grow from around 43 cents per share for all of this year to 54 cents for all of next year, slightly more than 20 percent.
``The days where we could comfortably expect that our out- year revenue and earnings per share estimates were low by 30 to 50 percent are gone,'' Williams Rice wrote in an earnings report. ``We think that near-term results are more likely to be very close to our estimates ... As a result the valuation gets harder to justify.''
Others say the it is already hard to justify.
At a multiple of 90 times its revenues for the last 12 months, Yahoo has a much higher valuation than even Cisco Systems Inc. (NasdaqNM:CSCO - news), itself considered one of the most highly valued stocks. |
