Updated from 7 a.m.
1. Panama Canal
is digging itself another hole.
The Sunnyvale, Calif., Internet giant rolled out its latest
earnings disappointment Tuesday. Yahoo! posted a soft first quarter and trimmed its forecast for display-advertising growth.
The setback renewed calls on Wall Street for CEO Terry Semel's head, though as usual he and finance chief Sue Decker
sounded oblivious on their conference call.
"Let me begin by reminding you of our strategy," Semel told analysts. He said Yahoo!'s plan will "enable us to capture the future growth of the Internet" and "leverage our deep audience insights."
Those insights haven't gone deep enough lately. The stock lost 35% of its value in 2006 as Yahoo! botched the rollout of its Panama ad-ranking system and disappointed repeatedly on the
earnings front. This week's selloff short-circuited a relief rally that had pushed the stock up 25% for the year.
Another one of Semel's deep insights was prompted by
acquisition of closely held ad server DoubleClick.
The $3.1 billion deal threatens to bring a major player into the display ad market, where Google's efforts have until now been lacking. But now, as
Vishesh Kumar points out, Google is clearly showing that it plans to use its dominance of search ads to muscle into display ads. Not that any danger is apparent to Semel.
"I would say for starters," he said of the Google-DoubleClick linkup, "it certainly does validate Yahoo!'s strategy for these past few years."
Someone needs to validate Semel's ticket out of Sunnyvale.
Dumb-o-Meter score: 95. Yahoo! is "happy to see others now finally coming to that table," he adds.
To watch Colin Barr's video take of this column, click here
2. Zander at the Bat
whiffed again this week.
The weak-hitting Schaumburg, Ill., handset maker reported a first-quarter loss and
trimmed its guidance for the rest of the year. Wednesday's soft numbers offered the latest sign of distress at the tech giant, which last month
shook up management and pledged to make deeper cost cuts.
Some of the strongest comments on Wednesday's earnings call came from CEO Ed Zander's new lieutenants, operating chief Greg Brown and interim finance chief Tom Meredith. They joined the company back on March 21, when the company previewed its latest financial pratfall and bid longtime exec David Devonshire adieu.
"Tom is a seasoned professional with tremendous financial expertise," Zander said then, "including in-depth knowledge of Motorola, having joined our board in 2005."
Meredith's knowledge of baseball appears to be more limited. According to the
SeekingAlpha.com transcript, when asked on Wednesday's
conference call how Motorola would revive its flagging fortunes, he turned to a slightly rough diamond metaphor.
"What you are hearing is that we are actually much more focused on balance between our
cash flow, our profitability and growth," Meredith said. He then continued, in seemingly nonsensical fashion:
"And right now growth is playing third base and we need to get the first and second," he said. "So, it doesn't take a prodigy."
That's nice, since Motorola clearly doesn't have one.
Dumb-o-Meter score: 93. "I have never been particularly fond of hangovers," Meredith revealed in one gripping discussion of inventory levels.
3. Trade Secrets
Market turmoil, of all things, is breaking down the online brokers.
sold off this week after both trimmed full-year earnings guidance. Though the companies cater to a fast-trading clientele, they were quick to blame
Ameritrade kicked things off Tuesday with a
disappointing first quarter. The Omaha, Neb., firm said average daily client trades dropped slightly from a year earlier, while its per-trade average commission fell by 11%. Shares dropped 9% in heavy trading Tuesday.
"We've adjusted our guidance to account for the impact of recent market volatility and lower activity rates," CEO Joe Moglia said in a statement Tuesday. "We have also decided to increase investments in our client experience to position us for more growth in 2008."
E*Trade's client experience wasn't much better. On Wednesday afternoon it trimmed its full-year earnings range by as much as a dime a share, saying that "recent volatility in the macroeconomic environment has affected retail customer behavior and engagement levels."
Just how the macroeconomic environment did that wasn't clear in E*Trade's postclose press release. But Ameritrade chief Joe Moglia pointed all too clearly to the Feb. 27 market rout, which started with a 9% plunge in Shanghai.
Sure, trading that day nearly doubled its usual level, Moglia said in a Tuesday afternoon conference call. But he added that a flight-to-safety urge later drove many users to the sidelines. Only now, he said, are they starting to return.
"The week where we had the international blow-up, that was the first time in three years where we had multiple days where they were in the hundreds of down days," he said Tuesday, according to the
SeekingAlpha.com transcript. "I think that was a joke."
The same might be said of the volatility excuse.
Dumb-o-Meter score: 88. Boring markets are much, much better, of course.
is really mailing it in.
Shares in the Los Gatos, Calif., mail-order movie company dropped 14% over three days after Netflix posted
first-quarter numbers that showed it is
losing customers to
"Our first-quarter results were in line with our guidance," said CEO Reed Hastings, "but at the low end of the range, reflecting the impact of increased competition."
Netflix blamed Blockbuster's Total Access offer, which gives users the right to swap DVDs they get in the mail for free rentals at Blockbuster stores. The effect was evident in Netflix's slowing growth -- net user additions dropped 30% from a year ago in the first quarter -- and in rising customer defections, or churn.
Netflix feels strongly that those trends will turn around once Blockbuster raises its prices, a prospect it mentioned repeatedly on Tuesday's conference call.
"To us, it is not a question if Blockbuster will raise their online prices, but only when and how much," Hastings said Tuesday, according to the
SeekingAlpha.com transcript. "And when they do, it will reset the competitive calculus as well as increase their profits."
Netflix clearly is eager to test out the new competitive calculus, given that for now it is forecasting a possible second-quarter net subscriber loss.
"Our thesis that online DVD rental would become very large appears more and more credible," Hastings said on Tuesday's earnings call. Appearing less credible, he concedes, is "our thesis that most subscribers would choose Netflix."
That's putting it mildly.
Dumb-o-Meter score: 85. "To state the obvious," Hastings adds, "if Blockbuster stays on the 'tolerate losses for growth' model long enough ... earnings growth and subscriber goals would become unattainable."
5. Avici: Plane-Spoken
is getting routed again.
Shares in the North Billerica, Mass., networking outfit plunged 28% Thursday after Avici said it would
abandon the business of making so-called core routers, the devices that control Internet traffic. Avici said it was tired of running a distant third behind rivals
and prefers to focus instead on "market opportunities where we can uniquely deliver value."
That would be a nice change, given that shares have lost 99% of their value from a reverse split-adjusted closing high of $599 back in August 2000. One analyst on Thursday's conference call asked why the company didn't just liquidate, given its sorry track record -- a characterization CEO Bill Leighton disputed.
In any case, Avici is abandoning a hardware business that generated 90% of its revenue last quarter in favor of a software venture called Soapstone Networks. The company said it believes software will be a higher-growth area and that its new offering will provide big telco customers with greater flexibility.
Avici, which also set plans to return $28 million to shareholders through a $2 special dividend, then offered a rare glimpse into the geometry of corporate myth-making.
"Soapstone represents a natural evolution of a maturing routing market," CEO Bill Leighton said in a press release late Wednesday, "and will separate the control plane from the data plane in a router or switch and move the network control plane closer to the services control plane."
It's plain as day that these guys have no clue what they're doing.
Dumb-o-Meter score: 80. "Veni, vidi, Avici" translates roughly as "we came, we saw, we focused on opportunities in high-growth markets."
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