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Yahoo: Do You Still Yahoo?

It seems that all great companies eventually have their comeuppance. Not long ago, such companies as US Steel and Sears were apparently unstoppable powerhouses. Now, these companies are considered has-beens.

The true test of all great companies is how they deal with adversity. When markets change, can these companies make the tough choices?

One of the premier Internet companies that has been under much pressure is Yahoo! . With dot-coms running out of money and pulling back on ad spending, it was inevitable that Yahoo would feel the pinch. In fact, investors have steadily been discounting this into the stock price.

Then yesterday, at the Robertson Stephens Internet Conference, the CEO of Yahoo, Tim Koogle, made comments that were, well, not very sanguine.

Of course, the mega concern is that ad revenues for the current quarter (which ends September 30) will be problematic. According to Koogle: "a little of the upside" will be taken away in the near term.

As a result, investors dumped shares in after-hours trading. The comments from Koogle appear to be a subtle way of providing guidance to analysts -- without causing panic. Currently, expectations are that Yahoo will generate $280 million in revenues in the third quarter, which compares to $270.1 million in the second quarter. It would not be surprising to see Yahoo fall short of the expectations.

In all likelihood, the dot-com shakeout will adversely impact Yahoo for the rest of the year. Basically, Yahoo will be shifting revenues towards traditional corporate clients. Also, Yahoo will be focusing on non-advertising revenues.

But if you have a long-term perspective and want to buy a premier Internet company, Yahoo would be a top pick. By all accounts, Yahoo is making the right changes; although the transition will mean slower growth in the near-term. But, as Koogle said yesterday: "long-term growth potential is still there."