Yahoo Shaken but Not Stirred by AOL Deal
Executives at Yahoo Inc., the most popular spot on the World Wide Web, said Tuesday that they will keep buying smaller businesses but don’t plan any blockbuster mergers in response to the seismic shake-up caused by rival America Online’s proposed merger with Time Warner.
Concern about the deal’s impact on Yahoo contributed to a sharp decline in the Santa Clara-based Internet directory’s stock price during the day. The slide continued in after-hours trading, even though the company reported fourth-quarter earnings that beat analysts’ expectations--and even after Yahoo announced a 2-for-1 stock split effective Feb. 14.
Yahoo reported fourth-quarter net income of $57.6 million, or 19 cents a share, before costs associated with acquisitions, up from $12.8 million a year earlier.
Analysts had officially expected earnings of about 15 cents a share.
Revenue soared to $201 million from $91.3 million, and Yahoo’s global audience doubled to 120 million users.
But the company specifically warned in a conference call that its revenue growth isn’t sustainable.
Yahoo shares tumbled $38.69 to close at $397.38 in regular Nasdaq trading, then lost $25.38 more in after-hours activity to $372. The earnings were reported after the market closed.
“They used to beat the numbers by so much, people thought that was the norm,” said Lehman Bros. analyst Brian Oakes. Although Wall Street officially expected 15 cents a share, the “whisper” number had been closer to 20 cents.
The volatile stock, which briefly topped $500 a week ago, has come to symbolize investor sentiment about the Internet even more than AOL. Yahoo is one of the few profitable Net companies, despite relying on advertising income instead of the subscription model of AOL.
Yahoo Chief Executive Tim Koogle said on a conference call with investors and analysts that the company will stay the course, not tie itself to one means of getting onto the Net or to one family of consumer brands.
“By staying independent, we’re able to attract the broadest array” of Web surfers, Koogle said. “We see no reason to change.”
Yahoo officers said the company will file today for the right to issue $750 million in shares for future acquisitions and is most interested in specialized “content aggregaters” and the makers of “enabling technology.”
But that didn’t reassure investors worried about the increased power of AOL to deliver Time Warner’s household names at high speeds. As an example, Yahoo Sports, which includes material from a number of content providers, now has a more formidable foe, analysts said.
“You’ll be up against another service that has real brand names--it’s not just AOL Sports, it’s Sports Illustrated,” said Credit Suisse First Boston analyst Lise Buyer. “It’s not just Finance, it’s Fortune.”
Koogle and Yahoo President Jeff Mallett said the company has moved to take advantage of increased broadband high-speed access by buying Broadcast.com and pushing more streaming audio and video to surfers who can receive it.
But analyst Oakes said that after the Time Warner deal, “they come off a little less assured of the future in digital television.”
Oakes and others weren’t convinced by the official lack of excitement at Yahoo over the AOL merger, the largest in history.
Yahoo has talked to software giant Microsoft, rival Internet portal Lycos and others about possible combinations before, said Patrick Keane, an Internet analyst at Jupiter Communications in New York. “Have they been in similar talks with Disney and Viacom? I think they have to be. A piece of differentiation they need to look into is content acquisition.”
Others who have profited handsomely from Yahoo’s stock declined to second-guess the company, which commands a market capitalization of more than $100 billion less than five years after going public.
“AOL was interested in Time Warner’s cable piece, and Yahoo has always been agnostic with regard to access,” said Paul Cook, a money manager with Yahoo shareholder Munder Capital Management. “My opinion is that Yahoo continues down that road and tries to build the most compelling site out there.”
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End of Upswing?
Yahoo shares have been extraordinarily volatile lately, even for an Internet stock.
Weekly closes
and latest
on Nasdaq:
Regular Nasdaq
close Tuesday:
$397.38,
down $38.69
Source: Bloomberg News
