HE DAY AHEAD: Is Yahoo lowballing
Wall Street?
By Larry Dignan TDAIN ZDII
COMMENTARY -- Nearly every Internet analyst on the
planet expected Yahoo! (Nasdaq: YHOO) to lower its
estimates for the first quarter and 2001. And now that
Yahoo actually lowered its sales and earnings targets,
analysts don't want to believe CEO Tim Koogle and
company.
Go figure.
Yahoo met earnings expectations, but the outlook for
2001 didn't exactly fit into Wall Street's fancy financial
models -- the guidance was worse. Much worse. Wall Street projected 2001 earnings of 57 cents a share
and expected guidance to come down a dime or so.
Yahoo said it expected 33 cents to 43 cents a share in
the fiscal year.
Wall Street projected 2001 sales of $1.42 billion, but
Yahoo said it expected sales of only $1.2 billion to $1.3
billion.
The first reaction to Yahoo's guidance could be summed
up by "look out below." The conference call had a
different vibe. There was evidence of some serious game
playing with analysts. Ahead of the results, the
ever-bearish Lehman analyst Holly Becker said there
would be a string of revenue revisions by Yahoo.
But I wouldn't count on it. Yahoo lowered guidance
enough to accommodate a worst case scenario last
night. Yahoo's strategy is clear -- take your hit now,
lower guidance big time and surprise folks once
expectations fall through the floor.
Yahoo executives are known to be conservative about the
company's outlook and they didn't disappoint. Some
analysts questioned Yahoo's outlook for the first quarter
and asked whether officials were lowering expectations
too much just to look good later. Look for a lot of
conflicted reports today.
Morgan Stanley analyst Mary Meeker argued that Yahoo
was lowballing. She said the environment was less
competitive, dot-com advertising has declined as a
percentage of revenue and ad rates are holding in many
areas for Yahoo.
Koogle's reply. "We are trying to be prudent managers,"
said Koogle. "We are trying to gauge things just like you.
We are trying to lay out a plan that's very prudent."
Here's what Koogle should have said: We're trying to
save an upside surprise for later.
Koogle didn't answer Meeker's question directly, but
noted that the economy and capital constraints for
start-ups are short-term problems. "We see the market
reaccelerating in the second half," said Koogle. "We're
more conservative than third parties. If growth is higher
we should benefit."
Well, duh. Koogle knows the game. Analysts had
already expected something bad and Koogle gave them
something worse. Once all the analysts adjust their
models, things can only look up -- at least in theory. At
some point -- possibly in the second half -- analysts such
as Becker will have to say that Yahoo is likely to deliver
an upside surprise. In a few months, most investors will
completely forget how Yahoo lowered estimates last
night.
Aside from the Wall Street game, there were a few things
to worry about. CFO Susan Decker said pure-play
dot-com customers accounted for roughly 33 percent of
sales in the fourth quarter, down from 40 percent in the
third quarter. Nice improvement, but that's still way too
much.
And then there's the one-time write-off for money-losing
investments. Decker attributed the loss to shares
exchanged with Net2Phone (Nasdaq: NTOP) in their
partnership. Yahoo posted a non-cash loss of $97.8
million, or 17 cents a share, because of the $138.5
million investment income loss.
Speaking of double talk
While we're on the topic of silly analyst games, Cisco
CEO John Chambers put on quite a display on
Wednesday.
With Cisco (Nasdaq: CSCO) shares reeling from a
downgrade from CIBC World Markets, Chambers stepped
up to the plate at a Morgan Stanley conference and
delivered plenty of mixed signals.
Chambers wants it both ways -- he wants to
acknowledge that a slowing economy could hurt Cisco,
but still wants to portray the company as the best of the
networking bunch.
"Is the economy slowing? Absolutely," said Chambers.
Cisco's second quarter is "a little bit more challenging"
because of the slowdown and the company lacks "good
visibility into the next two quarters," he said.
But Chambers doesn't want you to get too worried. "Let
me say this directly, our customers business is slowing,
not our business with customers," said Chambers.
Although he noted Cisco wasn't immune to a slowdown,
which occurred "at a faster pace than people realize, he
added that the networking giant "won't be as affected as
some segments of the IT community."
And just to follow up. Chambers sang that familiar "the
industry will grow between 30 percent and 50 percent"
tune and noted that he expects Wall Street to cook up a
wide range of outcomes for Cisco. Who can blame
analysts for being off the mark? You'd have to be psychic
to figure out what Chambers was trying to say.TDAIN |
