bulls bellowed buy Wednesday but failed to rouse a retreating stock.
Shares in the Net giant plunged after the company's
fourth-quarter earnings disappointment, unveiled after the market closed Tuesday. The setback, along with
profit shortfal,, hammered shares across the tech sector Wednesday morning. Even huge
, whose shares have seemed mostly immune to market ills, dropped 3%.
The selling in Yahoo! -- which was down 11% at midday, failing to retake much ground after Tuesday night's 13% thrashing -- prompted some fans to say an attractive valuation was in sight.
"Trends are not as bad you think!" writes Goldman Sachs analyst Anthony Noto, who rates the shares outperform, in a note to clients Wednesday. "We recommend buying the stock trading at 18.5 times 2006 EBIDTA." Goldman expects or intends to receive investment banking services from Yahoo! in the next three months and makes a market in the securities.
Citigroup's Mark Mahaney made similar arguments, pointing out in his note that branded advertising in the fourth quarter "was exceptionally strong." He calculates that the shares are trading at 19 times his 2006 earnings before an interest, taxes, depreciation and amortization estimate, and 15 times his 2007 target. Deutsche Banc's Jeetil Patel also encouraged investors to buy the shares given their "preciptious" decline.
Merrill Lynch's Lauren Rich Fine agreed that the selloff seems like an "overreaction," but she said she isn't ready to recommend that investors buy the stock. Fine, who pegs the stock's fair value at $41 and who recently cut her Yahoo! rating to neutral, slashed her 2006 EBITDA estimate by $113 million to $1.97 billion.
"Yahoo! seems to have become quite a bit defensive and we now have some new concerns, i.e., the growth of social communities, such as MySpace, slower affiliate revenue growth, and delayed gratification on improved search monetization," she writes.
Yahoo!'s results dashed investors' optimism that the company would benefit from the same trends that's catapulted Google's shares to more than double last year. Yahoo! plummeted $4.53 to $35.58.
Adjusted net income was $247, or 16 cents a share, compared with $187, or 13 cents, a year earlier, while sales excluding fees paid to partners gained 36% to $1.07 billion. Analysts had expected earnings per share of 17 cents.
Yahoo!'s guidance for the year also didn't inspire confidence. The company sees net revenue of $1.04 billion to $1.1 billion, which means Yahoo! is likely to miss the $1.09 billion Thomson First Call analyst consensus estimate. Operating cash flow will be $410 million to $440 million in the first quarter and $1.91 billion to $2.06 billion for the year, Yahoo! said. Free cash flow for the year will be $1.4 billion to $1.6 billion.
Yahoo! has beat earnings forecasts in four out of six quarters, creating expectations among investors that it would do so again in the last quarter. The bar is set even higher for Google, which is due to post results Jan. 31.
"There were probably expectations that we would improve profit margins," Chief Financial Officer Susan Decker said after the release of earnings.
In an interview, Decker pointed to factors that the company believes will hit its bottom line, including this year's expected termination of its agreement with
. She denied speculation that the company was finding it more difficult to compete with Google in the search market.
"We have a lot of respect for Google as competitors," Decker says. "I wouldn't say that things have changed all that much."