So Wall Street's catching on to this thing where

Yahoo!'s

(YHOO)

shares are pricey.

Investors were initially cheered Wednesday evening by the Net media company's disclosure of stronger-than-expected second-quarter numbers. But Thursday morning reversed the stock's momentum, sending it lower amid a rash of sell-side complaints about the slow-growing company's valuation.

The Internet bellwether isn't being dismissed out of hand, with brokerage analysts generally praising

the company's recent performance. At least one analyst still forecasts a 65% price increase in the next 12 months.

But that sort of optimism is growing increasingly rare on the Street, which over the last two years has haltingly signed on to an increasingly skeptical stock market assessment of Yahoo!'s prospects, particularly regarding its core Internet ad-driven business. By midday Thursday Yahoo's shares fell 48 cents, or 3.9%, to $11.71.

Crossing Jordan

Prominent among the valuation critics Thursday was Merrill Lynch analyst Justin Baldauf, who lowered his rating on the stock to sell from neutral. Even after its 34% decline since Merrill's last downgrade, wrote Baldauf in a note, Yahoo!'s stock trades for a "lofty" 67 times estimated 2003 earnings.

Looking Peaked
Yahoo!'s long slide

The company's enterprise value -- roughly, its market cap plus debt minus cash on hand -- is now 20 times expected 2003 earnings before interest, taxes, depreciation and amortization, a common (if

increasingly criticized) bottom-line media industry yardstick. In sum, says Baldauf, Yahoo! is valued at a 100% to 200% premium over comparable media companies. (Merrill hasn't done investment banking for Yahoo! within the past year.)

Revenue growth over last year, says Merrill, was driven entirely by new initiatives such as Yahoo!'s partnership with pay-per-click search engine operator

Overture Services

(OVER)

, not the longstanding online advertising business at Yahoo!'s core. Once these initiatives have been around for more than 12 months, says Baldauf, year-over-year growth will be slower, calling into question the sustainability of Yahoo!'s valuation.

Others in the hold-onto-your-wallet crowd Thursday include Prudential, W.R. Hambrecht, Investec and First Albany. Prudential's Mark Rowen, though optimistic about the ultimate fate of Yahoo! and the online advertising market, says he sees little evidence of a recovery, and guesses it will take "quite some time" for Yahoo!'s fundamentals to catch up to its valuation. First Albany analyst Youssef Squali deemed Yahoo! "not cheap," though he said he'd be an aggressive buyer at $10.

All this penny-pinching, of course, is a far cry from Wall Street's onetime bullishness on Yahoo!, strong enough to inspire strong buys on the company in 2000, when it was still trading in triple-digit dollar figures.

Just in Time

Taking the other side of the argument from Merrill on Thursday was SoundView Technology's Jordan Rohan, who reiterated an outperform rating and a $20 price target for Yahoo!.

"Yahoo's turning the corner in online advertising, albeit slowly," says Rohan, whose firm hasn't done banking for Yahoo!. If, as Rohan suspects, Yahoo! is gaining significant market share in an industry that isn't growing, "it would suggest that Yahoo!'s platform, for any number of reasons, is superior to that of other online media platforms," he says.