[Street.com] Yahoo!'s Summer of Discontent

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From: Linda (joelinda1@home.com)
Date: Tue Aug 29 2000 - 21:25:58 PDT

[Yahoo may be having problems, but short the stock?
I personally wouldn't have the nerve to short a blue
chip internet stock that has already corrected by 50%.



Yahoo!'s Summer of Discontent
By Jim Seymour
Special to TheStreet.com

8/28/00 4:30 PM ET

Holly was tough, but then, she's only the latest.
When Lehman Brothers analyst Holly Becker came out with
her comments Monday morning on Yahoo! (YHOO:Nasdaq - news
- boards), saying "the [online advertising-sales]
environment continues to worsen," and "we believe it is
only a matter of time before we see the impact on Yahoo!'s
results," she echoed what many analysts have been saying,
usually more privately than publicly, for the past few

Becker pointed out that with a market cap around $69
billion -- down now, thanks to a drop of about 13 Monday
-- Yahoo! is highly vulnerable to revenue sags, either
in absolute terms, or in quality.

Her big worry: With Yahoo! still dependent mainly on
advertising from dot-coms -- about 61% of the top 200
advertisers on Yahoo! in July were dot-coms -- and with
dot-coms failing left and right, and others cutting
back on advertising to conserve cash, an ad-dependent
company like Yahoo! is in trouble.

Worse, Becker, noted, Yahoo! had a 20% month-over-month
decline in ad dollars in July vs. June. And -- this gets
worse -- the third calendar quarter, July through
September, is usually a slow time for online advertising.

In fairness, I should note that Becker did not cut
her rating on Yahoo! -- but only, I suspect, because
it's already at neutral, which means it almost certainly
wouldn't go lower, barring a major collapse.

And I don't think online advertising is going to hell.

But Yahoo!, as an advertising-supported free service,
lives and dies by ad revenue. Its lofty valuation has
been built on absolute size, and by its management's great
job in delivering real revenue, and even profit. This
demanding market screams "MORE!" every quarter, and if
Yahoo! can't keep its numbers rolling, the current
quarter, which reports in October, could be bloody.

Yahoo!'s already down sharply, of course -- by almost
half since its 52-week high. Ad revenue hasn't fallen
anything like that fast --yet -- which again suggests
that if it does slow, Yahoo!'s stock price could tumble.

This decline in the number of viable dot-coms -- the
ones that need and can afford to pay for ads, hardware,
software and hosting services -- is scary. Some
companies have already effectively hedged against
it: For example, Exodus (EXDS:Nasdaq - news - boards)
has sharply boosted the number of corporate Web sites
it hosts, to anticipate any slack from dot-coms. But
others, such as Yahoo!, can't hedge that way.

For Yahoo!, the only way out is to increase the number
of non-com advertisers it serves -- and then persuade
those bricks-and-mortar accounts it does have to up the
number of impressions they're buying. Unfortunately,
Yahoo! has not done very well so far on that count: the
clicks-and-mortar/bricks-and-mortar people constituted
only about 10% of Yahoo!'s top 200 advertisers in July.

And Yahoo! faces a tough sell: While it's generally
accepted that online advertising is one of the best forms
for dot-coms, there's still a lot of skepticism that online
ads help non-coms very much.

This slide is painful for everyone in the dot-com business,
but the high visibility and even higher market cap of Yahoo!
makes it a marker many will follow as they assess dot-coms'
continuing viability.

Looks like at least two more quarters of hurt ahead.

Shorting Yahoo! has for two years been a way to lose
money in the market. But I'd think seriously about shorting
it over the next month ... and I'd be out of that position,
and then wouldn't get near the stock as it
approaches that quarterly report on Oct. 10.


"There's nothing like looking somebody eyeball-to-eyeball when you're
selling them something. The first question they ask is, "Who are your
other customers?" That's when you've got to look them in the eye and
say, "That's the good news. You're going to be our first."
     --Keith Krach, CEO of Ariba

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