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September 20, 2006

Is Yahoo! Inc Being Conservative or Is It Time To Sell Internet Stocks?

posted by MR WAVETHEORY at 9/20/2006 04:31:00 AM
The big question on every Internet investor's mind today is this: Is Yahoo! Inc being conservative with its guidance or is it time to sell internet stocks? Papers like the San Jose Mercury News reported that Yahoo's growth is slowing down. But that is hardly a surprise after last quarter's earnings miss. The Mercury news reports:

Yahoo's stock plunged more than 11 percent after Chief Executive Terry Semel and Chief Financial Officer Susan Decker told analysts at a New York investment conference that the Internet firm had started to see ad sales fall in economically sensitive areas like autos and financial services over the past few weeks.

``They are still growing, but they are not growing as quickly as we would have hoped at this time,'' Semel said.

Meanwhile, the FinancialTimes is predicting gloom and doom in Internet land.
Yahoo dealt a blow to the internet advertising sector on Tuesday as it warned that demand weakness from economically sensitive sectors such as automobiles and financial services would hold back its earnings in the latest quarter.
And Forbes is predicting the demise of portals and the rise of social networking.
Entire new categories of Web properties--social networks like News Corp.'s MySpace and video portals like YouTube, for instance--have emerged in recent years to attract the interest of advertisers.
Is this the end of Yahoo? I don't think so. Terry's recent downard guidance yesterday is awfully similar to what happened to Google's stock 2 quarters ago when George Reyes, CFO of Google, said at a financial conference that growth at Google will not be nearly as fast as it has historically been. In one day, Google lost about 20% of its value.

I don't think this comes as a surprise, but more of a delayed reaction from Internet investors who have finally come to accept that Internet stocks won't be growing as fast. After all, it's no secret that autos are not doing so well. Not a day goes by without news of a GM or Ford plant shutdown. Similarly, in financials, the housing market is cooling and therefore mortgage companies are spending less on advertising.


Should you be surprised? Not if you read the paper every day. Yahoo's warning is old news. Investors need to pay attention to upcoming news such as the launch of Panama - Yahoo's impending upgrade of its search system.

I suspect that Terry and Sue may have released the bomb so they can grant themselves cheap stock options. After all, if the stock falls to a lower strike, that just means their options are cheaper and they can make more money when the stock recovers. Read my article on how tech executives fatten their wallets by bring down their stocks - High Tech Executives Create Volatility In Their Stock to Enable Options BackDating. The incentives created by stock options are so very perverse!

So stop looking in the rear view mirror and start looking forward to the road ahead.

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