Yahoo Shares Plunge on Negative Forecast
Yahoo Inc. predicted that its profit in 2001 will decline from 2000, deepening concerns about prospects for the Internet economy and sending the company’s shares plunging 18%.
Yahoo expects its sales to be almost flat this year as Net advertising growth slows to a standstill. It said it will focus on taking business away from rivals and on working more closely with conventional advertisers.
Stock in Yahoo, the most widely used guide to the World Wide Web, dropped to $25 in after-hours trading from $30.50. Before the announcement, its shares had climbed 38 cents for the day.
Technology investors were also alarmed Wednesday by the comments of Cisco Systems’ Chief Executive John Chambers, who said the Internet networking equipment giant was facing a current quarter that is “a little bit more challenging” than it expected, as capital spending slows.
Cisco’s share price has fallen more than 40% in the last three months on fears that it will be hurt by a slowdown in spending by telecommunications service providers.
Cisco slipped 88 cents to close at $36.25 on Wednesday, after trading as low as $33.64.
Yahoo and Cisco had been two of the blue-chip technology stocks.
On Wednesday, Yahoo said it will earn 33 cents to 43 cents a share in 2001 before acquisition-related charges, investment gains and losses and amortization. For 2000, Yahoo said it earned 48 cents a share on that basis.
The company expects that 2001 sales will creep up to just $1.2 billion or $1.3 billion from $1.1 billion last year. In recent years, the company’s revenue typically doubled.
“The outlook they gave is pretty bad, which leads us to conclude that the market isn’t growing as fast,” said U.S. Bancorp Piper Jaffray analyst Safa Rashtchy. “They are going to focus on taking market share from others.”
For the quarter ended Dec. 31, Santa Clara, Calif.-based Yahoo said it lost $98 million, or 17 cents a share, because of a charge for selling some Internet investments and write-downs in other holdings. Before that $163-million charge, it met Wall Street expectations with pro forma net income of $80 million, or 13 cents, on weaker-than-anticipated revenue of $311 million.
Yahoo executives said that as “dot-com” advertisers fold, they will provide more extensive research and other services to big clients.
Jeff Mallett, Yahoo’s president, said the company will hire more sales and marketing professionals from bricks-and-mortar industries to offer everything from targeted ads to product development tips based on how Yahoo users search and buy over the Web.
“We will provide companies with competitive trends and analysis beyond a media partnership,” Mallett said in an interview.
But profit margins will fall as the company invests more on building corporate portals and on providing streaming video for businesses, executives said.
“The great companies use challenging times to their advantage,” Yahoo CEO Tim Koogle said on a conference call with investors.
No layoffs are planned, and the downturn doesn’t make Yahoo any more likely to merge with a traditional communications company, Mallett said.
Instead, Yahoo will weather the storm by adding new fee-based programs on top of its free e-mail, shopping, Internet-based phone calls and scores of other functions.
Yahoo reached 180 million Web users in December, rivaled only by Microsoft and America Online. It has also been one of the few profitable Internet content companies.
But the lion’s share of its revenue has come from advertising, and Yahoo said its $1-billion annual chunk of the Web advertising market might stay flat along with the industry’s total of $8 billion.
Even Yahoo’s grim forecast, well under Wall Street projections, could prove too rosy. The company expects a resurgence in the ad business in the second half of this year.
Analysts said Yahoo’s strategy makes sense and agreed with the executives that it will emerge stronger than others. But it will come at a steep price for its stockholders.
Another technology bellwether, Motorola Inc., said its fourth-quarter earnings fell as sales of mobile phones and microchips slowed because of a weakening economy and stiff competition.
Its net income fell 58% to $135 million, or 6 cents a share, from $323 million, or a split-adjusted 15 cents, a year earlier. Sales rose 11% to $10.1 billion from $9.1 billion, it said.
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Yahoo Slowdown
Internet portal Yahoo Inc.’s sales grew 5% in the fourth quarter from the third quarter, a far cry from the growth it saw in 1999 and early 2000.
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Yahoo Inc. quarterly sales, in millions
4th quarter 2000: $310.9 million
Source: Bloomberg News
