Skittish Analysts Slash Yahoo! and Express Concerns for Other Internet Plays

Do you, uh, know about Yahoo! (YHOO Quote)?

The analysts certainly do. And now, just one year after some helped hype Yahoo!'s stock to the moon (Alice!), they're munching on a big ol' bowl of crow. Cue Glenn Close and Jeremy Irons -- this is a big reversal of fortune. Today, the stock is off 21% to $16.56. It's 52-week high is $205.63.

Merrill Lynch's influential Henry Blodget made the biggest news, dropping the company to neutral from strong buy, while dropping revenue and earnings estimates. Like many other analysts, he cited limited visibility and slowing user growth as major reasons for the move. In 1999, Blodget was so bullish on the sector that he put an unthinkable price target of $400 on Amazon.com (AMZN Quote), which later ascended to that level. Yahoo! was another favorite -- and now it's not, especially after yesterday.

Yahoo! Yikes!

Skittish Analysts Slash Yahoo!

At Yahoo!, No Profits and No Visibility

Commentary

Cramer: Assessing Yahoo!'s Options

Eavis: Dour Forecast Makes Yahoo! Pricey Even Now

Seymour: Yahoo!'s Koogle Bumping Himself Upstairs

Williams: How Long Can Yahoo! Hang On to a Room of Its Own?

After spending all but seven minutes of yesterday's trading day on the shelf, unable to trade pending news, Yahoo! finally made an announcement around 5 p.m. ET. The company revealed that its first-quarter results will fall well short of estimates and that its top guy was stepping down. Now, Yahoo!'s first quarter is expected to break even, missing the 5-cent profit expected by analysts. Revenue will be substantially lower as well, due to shrinking online advertising.

And with all the blood in the water, there had to be a victim. Yahoo! CEO Tim Koogle, with the company since it first hit market in 1996, announced that he will step down from his position when a replacement is found. He will, however, stay on as chairman.

"We applaud Yahoo!'s decision to bring in fresh blood given recent management turmoil," wrote Lehman Brothers analyst Holly Becker, who has a market perform rating on the stock. She cut her first-quarter estimates, in keeping with Yahoo!'s new guidance. Keeping ahead of the curve, Becker dropped her full-year 2001 estimate to 16 cents a share from 33 cents a share -- prior to the company's planned discussion of 2001 earnings on April 11.

"Yahoo! still has a hefty valuation, a business model in transition and very little earnings visibility," she wrote, summing up what much of Wall Street told clients prior to the start of trading on Thursday morning.

Estimates came down all across the board. And it's worth noting that without guidance, the number of possible outcomes for Yahoo!'s fiscal 2001 ranges from the absolutely nothing expected by Prudential Securities to the far healthier expectations from Lehman Brothers and Dain Rauscher Wessels. Simply put, the pros are flying blind without more input from the company.

Swing Low, Sweet Estimates!
Brokerage	New 2001 EPS estimate	Old 2001 EPS estimate	Rating
Robertson Stephens	-$0.04	$0.31	Long-Term Accumulate
Prudential Securities	$0.00	$0.43	Hold
Credit Suisse First Boston	$0.02	$0.35	Hold
Goldman Sachs	$0.03	$0.34	Market Outperform
W.R. Hambrecht	$0.05	$0.39	Neutral
Merrill Lynch	$0.10	$0.47	Neutral
Dain Rauscher Wessels	$0.16	$0.37	Neutral
Lehman Brothers	$0.16	$0.33	Market Perform

Caution was clearly a watchword at many brokerages, with many skittish about the uncertainty -- not only in the company's executive suite, but also about what will happen beyond the first quarter. As mentioned, further guidance from Yahoo! isn't expected to come until April. Unanswered questions abound -- so many analysts simply told their customers to stay away.

"We continue to suggest that investors remain on the sidelines until the smoke clears," wrote Derek Brown, an analyst at W.R. Hambrecht, who has a neutral rating on the stock. "Though down more than 89% from their 52-week high, Yahoo!'s shares remain overvalued, in our opinion.

Goldman Sachs analyst Anthony Noto was cautious too, advising investors to stay out of Yahoo! stock, saying that shares would find support in the mid-teens. On Tuesday, prior to yesterday's halt, it closed at $22.38.

Brown drastically reduced his full-year forecast for the company, calling it his "best guess" until more information is available. Now, 2001 earnings are expected at 5 cents a share, way down from the previous 39 cents. Revenue is pegged at $791.7 million, close to $400 million less than the previous estimate -- a 33% reduction.

All over Wall Street, estimates have come down and speculation rose that in such a weakened position, Yahoo! would think about pairing up with another company. But don't count on a white knight to save the Web damsel -- some analysts don't believe in fairy tale endings.

"We think a combination with a larger media company is still unlikely anytime soon," wrote CSFB analyst Jamie Kiggen, who rates the stock hold, "given the continued reluctance of large insider shareholders to sell, and the search for a new CEO who will want to craft his or her own strategy to recapture value."

The analyst community had a lot to mull over, contemplating not only Yahoo!'s fortune, but that of the entire Internet space. Yahoo! is a wellspring for the Web. For some, it is a source of revenue. For others, it is a source of page views. But no matter which way you slice it, companies are linked to Yahoo!, either literally or figuratively.

Like Terra Lycos (TRLY Quote), which was left flapping the in the breeze after Merrill Lynch analyst Peter Bradshaw told investors that it was the most exposed Internet company that Merrill covers. But, he didn't stop there. Bradshaw then called into question Terra's affirmation on last Friday that the company would make its first-quarter revenue targets

"This now means that Yahoo! and Terra are expected to have almost similar revenues in the first quarter, although Yahoo! has around double the enterprise value at circa $9.1 billion vs. $5 billion for Terra," Bradshaw said.

So here's the question: how can Terra match what Yahoo! expects for revenue -- if it's little more than half as large?

RealNetworks (RNWK Quote) was another victim. W.R. Hambrecht analyst Bill Lennan said the company could be affected by the problems over at Yahoo!. Citing a strong historical connection between the two companies' earnings, Lennan said he was concerned that RealNetworks' first-quarter earnings and revenue could fall short of current consensus estimates.

"We estimate $49.5 million in revenue," he wrote, "but would not be surprised by revenue in the $38 million to $43 million range."