Whispers Can Make You Scream
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It's bad enough when a company's stock is punished because reported earnings fail to meet the "consensus estimates" (read: guesses) of analysts.
But when a stock takes a hit because it falls short of unofficial "whisper numbers"... well, then we've entered into the realm of ridiculous.
Consider the latest victim of the street's perpetual whisper campaign: Yahoo! (YHOO) The portal giant's shares were down nearly 6 percent in Wednesday afternoon trading after Tuesday's release of Q4 earnings that showed net income of $44.7 million, or 15 cents per share, up from $3.8 million, or 1 cent per share, in the year-ago quarter. Excluding amortization and goodwill costs and taxes on employee stock option gains, and Yahoo's net profit was $57.6 million, or 19 cents per share.
In Dot.Com Land, where companies are lionized merely for showing reduced losses, never mind actual profits, it just doesn't get any better than that.
Why do whisper numbers - or heck, even the consensus estimates (read: guesses) of vaunted analysts - carry so much weight? Because (and not to put too fine a point on it) the market often is an impressionable idiot, unable to make independent, objective judgments and too easily swayed by expectations set by an invisible coterie of "experts."
Granted, expectations for Yahoo are higher than those for any other Internet player, with the exception of America Online (AOL). But from where I'm standing, the company more than met those expectations. Indeed, if I owned shares of Yahoo (which I don't), I'd be pretty damned pleased to see a 15-fold increase in earnings per share over the fourth quarter of 1998.
Which doesn't mean that Yahoo isn't overvalued. I've written as much in the past and at its current value of 175x TTM revenue, it is even more so now.
But that's not what the market was responding to Wednesday. Nor do I believe investors were reacting to warnings from company executives that Yahoo's 100 percent and better revenue growth won't be sustainable. Such warnings not only are becoming boilerplate for high-flyers in the Internet galaxy, they're based on plain common sense.
A commodity that sometimes is more scarce on the street than Internet profits.
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