Whispers Can Make You Scream

It’s bad enough when a company’s stock is punished because reported
earnings fail to meet the “consensus estimates” (read: guesses) of

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

Apparently, however, Yahoo’s stellar Q4 performance wasn’t good enough
for investors because it failed to live up to street whisper numbers of
as high as 20 cents per share.

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

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