Investors Unfazed By Yahoo! Attack

Like a supportive friend rushing to the side of a noble mugging victim,
the market sent shares of Yahoo!
up nearly 5 percent by early Tuesday afternoon after a hacker attack left the
leading Web portal’s site down for three hours Monday.

As they did in the wake of outages on eBay’s (EBAY)
site last year, the media immediately spun out stories raising dark
concerns about the vulnerability of the Internet to marauding
cyber-vandals. And while shares of EBAY slumped after each reported site
outage in 1999, investors aren’t panicking this time.

That’s because they perceive the two cases differently. Whereas eBay has
had chronic outage problems, Monday’s was the first significant
shutdown for Yahoo! (YHOO), especially impressive given that the company handles more Web traffic than anyone except America Online Inc. (AOL).

Also, the damage to eBay after some of its outages last year was
financially measurable. Following a 22-hour shutdown in June, eBay
announced it would waive $3 million to $5 million in listing fees to
compensate sellers whose auctions were canceled.

The company also reported shelling out $8.8 million in Q3 to upgrade its
troubled computer systems. Those kinds of numbers go right to the bottom
line for investors, and the negative impact on EBAY shares in each
instance was swift and certain.

With Yahoo’s outage, it’s harder to determine a dollar cost. Will losing
three hours of operation hurt the company’s traffic figures for the
month? I hardly think so. Will ad revenue suffer? Even less likely. Will
the company be forced to spend millions to improve its security? Don’t
count on it.

It would take much more than a three-hour outage to shake the market’s
confidence in Yahoo. Indeed, just one day after Monday’s outage, the
company’s stock received a “strong buy” rating from Deutsche Banc Alex.
Brown, despite closing Monday at a lofty $354 per share and even though
Yahoo is valued at 168x last year’s revenues.


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