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Yahoo! Sinks Under Rising Valuation Concerns

A solid fourth-quarter performance can't keep the richly valued Net giant from giving back some gains.




wave seems to have crested for now.

Shares in the Net media giant slipped 4% Thursday morning, a day after the company

posted solid fourth-quarter earnings and guided toward continued growth in the first quarter. Most Wall Streeters duly noted the company's strong progress, though one major analyst broke with the flock and downgraded the stock on valuation concerns.

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In a note issued after Yahoo! released financials Wednesday evening, Smith Barney analyst Lanny Baker downgraded the Internet bellwether to hold from buy. Motivating the change, said Baker, was Yahoo!'s "recent appreciation" toward his new price target for the stock, which he was concurrently raising from $50 to $46.

"Yahoo! ended 2003 with strong momentum on all fronts, from surprising user growth to rapid subscriber gains to surging advertising and search revenue," Baker wrote. However, he added later, "we now feel that much of the good news at Yahoo! has been discounted into the share price."

Yahoo!'s shares were trading at $46.73 Thursday, down $1.66. Shares in Yahoo! have steadily climbed over the past year, and are more than 2 1/2 times their 52-week low. At recent levels the stock has traded in the range of 90 times forecast 2004 earnings.

Baker, who holds Yahoo! shares himself, wasn't the only analyst to raise his price target or estimates for the company, based on Yahoo!'s performance and outlook.

Pacific Crest analyst Steve Weinstein, for example, upped his target price from $48 to $60. First Albany's Youssef Squali raised his target from $44 to $47.

Raising his estimates, SoundView Technology's Jordan Rohan noted that Yahoo!'s strong fourth-quarter performance was partially masked by an unexpected noncash stock compensation charge of $20 million stemming from the acquisition of pay-per-click search engine operator Overture Services.