The market is approaching a pivotal point with Yahoo!Earnings coming week.
As I think much is already priced in (yahoo trades about 20% off the price it hit right before the last earnings release), any positive guidance could turn Yahoo and that market sector around.
Some say that it is written on the wall that it will eventually show a slowdown: As many particular ads in their ad carousel show proprietary yahoo services...
Here is a story pointing out that all took a very bearish view, including those who once defended yahoo relentlessly:
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Yahoo Faces Hard Questions Entering Earning Season
By Andrea Orr
PALO ALTO, Calif. (Reuters) - Yahoo Inc. (NasdaqNM:YHOO - news) may be the best of the bunch in the Internet media business, but people are not sure what that counts for anymore.
As the company prepares to report third quarter earnings this week, fear and doubt are emanating from the same investors who once defended Yahoo with blind faith.
With a growing number of dot-com companies closing up shop and several big personal computer makers warning of a sales slowdown, it seems only reasonable to wonder how long Yahoo can keep up its robust performance.
It is not just a matter of guilt by association either. Industry analysts say that no matter how much sales and earnings growth Yahoo reports on Tuesday, they will have several serious questions about the company's outlook.
Could the PC sales slowdown limit Yahoo's ability to grow its user base? How are its new ventures in the wireless device market faring? Has it already seen the worst of the dot-com slowdown or are its future results vulnerable? Is it luring big old economy advertisers, like car and consumer products makers, fast enough to replace the dot-coms that have dropped off the map? And can it diversify away from an ad-based revenue model?
Although Yahoo has been asked, and has answered, these questions several times already, the doubts only seem to grow. Three months ago, when the company was preparing to report its second quarter earnings, its stock was depressed to around half its all-time high.
Having closed Friday down more than $3 a share to $81-1/4, it is now barely one-third above that peak [beyond that trough, should read]. Industry analysts warn it could fall some more if it says anything to suggest a slowdown in the future.
``The guidance they give is going to be more crucial than the numbers,'' said U.S. Bancorp Piper Jaffray analyst Safa Rashtchy. ``If they guide next quarter or year 2001 down, that would be a cause for concern.''
Depending on how it is measured, advertising currently accounts for between 80 to 90 percent of all the revenue that Yahoo generates, dwarfing the amount of money the company brings in from fee-based services it offers, such as store hosting for merchants and online conferencing for businesses.
NON-AD REVENUE
``They are growing non-ad revenue, but I would like to see it grow faster,'' admits Rashtchy.
And while the company has had almost unparalleled success attracting, and retaining advertisers, it seems that the viability of that business model will remain under scrutiny as long as so many of its potential advertisers keep going out of business.
Last quarter, Yahoo tried to put the question to rest when it said that its exposure to ``financially questionable'' advertisers was less than 10 percent.
But the extent to which the overall Internet business has deteriorated since then suggests that number needs to be revisited.
Investors who have watched one esteemed Internet stock after another become a pariah on Wall Street overnight, have grown skeptical of analyst recommendations and company reassurances, especially in view of the recent collapse of Priceline.com Inc (NasdaqNM:PCLN - news) stock to less than one-twentieth of its all-time high.
Until just recently, Priceline had remained a favorite pick of Wall Street analysts, who had grouped it with Yahoo in a select group of winning Internet stocks.
Now, some Wall Street analysts are admitting they are uncertain about Yahoo's outlook. ``There is still much controversy about exactly how much the dot-com slowdown will impact the company,'' Merrill Lynch analyst Henry Blodget wrote in a recent research report.
So are all these concerns about Yahoo justified?
For what the official forecasts are worth, there are a number of signs to suggest Yahoo is much more a stable media business than a troubled dot-com.
For all the talk of lost dot-com advertising, for instance, the market continues to show rapid growth. The Internet Advertising Bureau reported last week that online ad spending this year was on track to double 1999 levels. By all accounts, Yahoo is positioned better than almost any business to win those new ad dollars.
``Marketers want the best possible position on the Internet they can get,'' said Abhishek Gami, an analyst with William Blair & Co in Chicago who recently initiated coverage of Yahoo with a long-term buy recommendation. Even those companies that need to scale back online ad budgets, will probably remove banners from less-visited sites before they leave Yahoo, he said.
``Yahoo has the one ingredient no one else except America Online (NYSE:AOL - news) has, and that is a large audience,'' said Gami.
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