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Yahoo! In One Ear, Out the Other

Lehman Brothers Equity Analyst Holly Becker succeeded in making a name for herself by taking on Yahoo! this week, one of the only remaining Teflon Internet graybeards. The investment bank maintained its "neutral" rating on the portal giant, while expressing concern over the company's future revenue numbers tied to softening advertising sales. Shares of Yahoo! fell victim to mild profit taking by investors who were likely looking for an excuse to take some money off the table anyway.

The report illustrated a handful of valid points, chief among them, that of Yahoo!'s top 200 advertisers, well over half are Internet companies. Many of those same dot-coms are ditching costly branding campaigns while clutching scarce remaining cash close to the vest. There's little question that the widespread belt-tightening by struggling start-ups could come home to roost on Yahoo!'s bottom line.

Merrill's chief cheerleader Henry Blodget did his usually song and dance protecting the thoroughbreds in his stable of stocks, maintaining a "buy" rating on Yahoo!. Over in the next cubicle, PaineWebber investment analyst Chris Dixon reiterated his own "buy" on the stock while arguing the selling was an overreaction to the negative comments by Lehman. Not to be outdone, Jupiter Communications muscled its way in with a fluffy report that estimates online ad spending will skyrocket from $5 billion this year to $15 billion in 2005.

The entire soap opera has been played out before jaded investors who might remember Ravi Suria's banana peel that put Amazon.com on its back in June following the Lehman Bond Analyst's negative comments on the e-tailing giant's suspect credit rating. Back then Holly Becker respectfully disagreed with her colleague's assessment, before jumping on the bandwagon a month later with a downgrade on Bezos' brainchild.

So the real question is whether investors should take all of this seriously or with a grain of salt. The latter of the two is the obvious choice for a number of reasons, some of which aren't necessarily based on a fundamental analysis of Yahoo!'s prospects. For starters, the blue chipper has taken its consensus estimates out behind the woodshed for the last five quarters straight. Whether it meets or squeaks past analysts' forecasts in its upcoming quarter isn't likely to have a material affect on its stock considering it's one of the scant few Internet plays showing profitability.

Boasting nearly 50 million monthly eyeballs, Yahoo! enjoys the elite distinction of getting first dibs on the lion's share of ad dollars spent online. I'm not suggesting that the company doesn't have room to fall. I'm just saying it's unlikely to take a spill because of softening ad sales. If I'm wrong, the entire dot-com industry would have to go to hell in a handbasket before the Net's list of who's-who fall victim to the slowdown.

Maybe the strongest argument for why Lehman will end up eating crow, is that we've seen slumping share prices and general distaste for the entire Internet space since April. While fear and greed are the predominant sentiments that drive Wall Street, a healthy dose of boredom has beset many retail investors. Tired of waiting for a little action or the occasional train-wreck to interrupt watching the grass grow, many investors have simply taken their ball and gone home. But none have forgotten their taste for sexy Net stocks or that high-tech has lately been the only game in town.

It only takes a spark to start a blaze, and I'd say the Net stocks' underbrush is bone dry, vulnerable to break out into irrational exuberance at any moment. I'd also say it's a pretty good bet we'll see some froth grip the market before year's end - probably sooner. This latest shakeout has left many dot-coms beyond repair; and while the next rising tide won't lift all boats, it will boost the lead