Yahoo! Stock Price Falls on Flattering Expectations

Is it entirely Yahoo!’s fault? Today, Yahoo!’s stock is down about 12% as the market punishes the Company for reporting lower than expected earnings. According to an article on MarketWatch.com…

Quarterly profit dropped 11% on higher operating costs, as the No. 1 operator of Web sites by traffic spent heavily to better compete against rival Google Inc.

The results disappointed investors and the Wall Street analysts who were expecting much better profit and sales figures in light of Yahoo’s introduction of an upgraded ad feature, known as Panama, early in the quarter that was meant to help it more effectively do battle against Google.

Back in March, Chairman and CEO, Terry Semel and CFO, Susan Decker hyped up Yahoo!’s Panama system citing “higher quality leads at more competitive prices” and better click through rates. Cool. You guys may want to mention that these improvements would not translate into increased revenues immediately. And quite frankly all these analysts we saw talking about it in various media should have realized it as well. I can’t recall how many super bulls I’ve seen on TV in the last week hyping up the Company and its Panama system.

Just The Facts
So, Panama hasn’t boosted revenues all that much yet. Big whoop. Yahoo! did do some good things for Q1 2007. Let’s review.

• Gross profit was higher. By 5% according to a Yahoo! press release.
• Marketing services revenue was $1,469 million for the first quarter of 2007, a 6% increase compared to $1,381 million for the same period of 2006.
• Fees revenue was $203 million for the first quarter of 2007, a 9 percent increase compared to $186 million for the same period of 2006.
• If I recall correctly, Panama wasn’t even rolled out (in full force) until the beginning of March, and that took roughly 2 weeks to complete. I know this sounds a little cynical, but….um…I’m not sure a week from a partially operational ad system will cause an immediate burst in revenues.

What Should We Expect Going Forward
According to a monthly study released yesterday by comScore, Inc., Google sites captured 48.3% of the U.S. search market for the March 2007 period, gaining 0.2 share points from the previous month. Yahoo! sites maintained its second place ranking with 27.5% of U.S. searches. But traffic is the least of Yahoo!’s worries. Ad inventory is the concern. Google is doing a good job of covering each ad niche (text, video, mobile, radio) although they’re paying huge premiums for some of these. Yahoo! needs to figure out how to do this without overpaying. Today, an alliance with McClatchy Co., the nation’s third-largest newspaper chain, was announced in which Yahoo! would sell ads through these various newspaper websites via the Internet.

The addition of McClatchy, publisher of the Sacramento Bee and 30 other daily newspapers, brought to more than 260 the number of dailies nationwide whose local sales forces will start selling online advertising using Yahoo technology to target ads over the Web — showing shoe ads to frequent shoe shoppers, for instance.

So now that the stock price is down 11.90% at $28.27, maybe you should consider buying. As I’ve mentioned in other posts, consider this a “stock sale“. I mean….Google is $478, so why not get the next best thing. And it so happens that the “next best thing” seemingly has nowhere to go but up. (Previously mentioned stock prices as of close on 04/18/2007).

Disclosure: I do not own Yahoo! stock, nor am I a licensed financial advisor. But, man, do I love watching the stock market.

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