Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Wednesday, July 19, 2006

Why Google Benefits From Yahoo!'s Woes

Stock Tickers: YHOO, GOOG, TWX, MSFT

For us to say, "Let's forget about earnings during earnings season" might be considered sacrilege. But in this particular case let's forget about earnings for a second.

Yahoo! (YHOO) did meet earnings but fell short on revenues and on guidance, and their Traffic Acquisition Costs are getting (ummm) lofty. The shares were down about 8% to 9% after the street digested the so-so numbers, but the real kick in the teeth came when YHOO's CEO Terry Semel announced the delay of their new advertising system dubbed "Panama."

"The new advertising system will take a little more time than we originally anticipated," said Semel in the earnings conference call. The new system won't start showing up until Q4. We were supposed to start seeing details over this within two weeks and this is really more than three months after Yahoo had said it would appear. To make matters worse, the system won't be fully operational until Q1 2007. What the H? It looks like Yahoo pulled a Vista.

Google (GOOG) fell 3% after Yahoo's fall, but they are now down only about 1.4% pre-market. Google is the real beneficiary of this delay as it allows them to maintain their dominance. In reality Google was not really going to lose its dominance over Yahoo! with the new "Panama" but even a 2% change in market share is something worth hundreds of millions of dollars in future business and perhaps billions of dollars in market capitalization.

Google is also among the myriad of tech and Internet names that report earnings this week and we won't get in front of that freight train. They are the real winner here from Yahoo!'s delays.

This may also give a little more breathing room for Time Warner's (TWX) AOL and Netscape units, as well as Microsoft's (MSFT) MSN Network. Unfortunately, these last two are in their own quagmires.

Jon C. Ogg
July 19, 2006

Powered by Blogger