A Yahoo! ( YHOO) skeptic speculated Monday that the company's deal with a major telco was moving too slowly to ring up the sales expected for this year.

In research published Monday morning, W.R. Hambrecht's Derek Brown said Yahoo!'s agreement to market high-speed Internet access with SBC Communications ( SBC) appeared to be behind schedule, calling into question the $20 million to $30 million in high-margin revenue that the relationship with SBC was expected to generate for Yahoo! this year.

The uncertainty surrounding that SBC-related revenue, representing as much as 3.3% of the $900-million-plus revenue that Yahoo! has forecast for 2002, is one of several factors behind Brown's sell rating on Yahoo!, as well as his price target of $8. W.R. Hambrecht hasn't done banking for the company.

In a weak day on Wall Street, Yahoo!'s shares dropped 83 cents Monday, or 7%, to trade at $11.19. Despite a brief early-spring rally, the stock has lost nearly one-third of its value this year as Wall Street has grown increasingly skeptical about the prospects for advertising-based businesses.

Branching Out

Originally announced last November, Yahoo!'s deal to offer cobranded DSL-based high-speed Internet access is one of several initiatives Yahoo! has taken -- with SBC or other partners -- to find new revenue to supplement its historical dependence on Internet advertising. SBC and Yahoo! have already launched the cobranded dial-up Internet access service they unveiled simultaneous with the DSL offering. Since then, the two companies have expanded their partnership to include forthcoming Internet services for small businesses and SBC's plan to sell placement in Yahoo!'s online yellow pages.


Off Peak
Yahoo! shares' long slide


Though Brown acknowledges that the financial terms of the Yahoo!-SBC agreement remain a mystery, he says he expected the DSL service would have accounted for "an overwhelming majority" of this year's expected revenue from the companies' collaboration. "Accordingly," he writes, "any delay in this product's nationwide rollout could materially impact the access revenue" Yahoo! had forecast. Yahoo! has said that it plans to launch the DSL service this summer, quickly drawing to a close.

Furthermore, notes Brown, when Yahoo! debuted its alliance with SBC last November, the company indicated it would be the first of many such access deals. But, says Brown, Yahoo! hasn't announced any additional deals; rather, a major potential DSL partner, Verizon ( VZ), allied itself with Microsoft ( MSFT) instead.

A Yahoo! representative wasn't immediately available for comment.

Stability

Yahoo!'s current stock price, writes Brown, seems "unjustifiably high," reflecting neither's Yahoo!'s fundamentals nor its near-term prospects. At the company's closing price Friday, he says, Yahoo! was trading at 84 times his earnings estimate for 2002 and 50 times that for 2003 -- "huge multiples" for a company with an expected annual growth rate of 20% to 25% for the next two years.

Other factors weighing on the stock, says Brown, include the state of the online advertising market and the employment market. Internet advertising, though stable, "is far from an indication that the broader online ad market is reaccelerating in a substantive way," says Brown.

He also points out that TMP Worldwide ( TMPW), parent of the Monster job listing site that competes with Yahoo!'s HotJobs, slashed its financial guidance because of weakness in the labor market. While it's possible that Yahoo!'s site has won market share from Monster, Brown says a more likely scenario is that the economy is hurting HotJobs' business as well.

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