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.”