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Tuesday, July 18, 2006

Widely Traded 48 Hour Clock: Yahoo!'s Search For A New Model


No one doubts that Yahoo!'s revenues and earning will continue to grow when it announces its last quarter later this week. What will be telling is whether the growth from non-search businesses is picking up steam. Because, its search business is not.

Marketwatch came out with an interesting bit of data today. Reviewing the new Comscore numbers, they found that Google's share of search rose from 44.2% in May to 44.7% in June. Yahoo! was at 28.5@ in June. quoted a Wall Street analyst as expecing Yahoo! to have a decent quarter: "Lehman Brothers forecasted second-quarter revenue of $1.14 billion, a 30% year-over-year increase, versus Yahoo's guidance of $1.08 billion to $1.16 billion". But, Google will undoubtly grow faster, and there is every reason to believe that Yahoo! will never regain its crown as the king of search.

One issue that Yahoo! faces is that it is much more vulnerable to competition from AOL and MSN than Google is. The "content aggregation plus search"business has been the bread-and-butter at Yahoo!. The company could afford to fall behind in search because its content business brought in lucrative display and video advertising while Google stayed with text link ads.

With AOL close to allowing its subscribers free access to all of its content if they move to broadband service, Yahoo! is watching one more large company attack its business at its most vulnerable point.

If Yahoo! does not show that it can fend off new competition over the next few quarters, it recent low just below $29 may get breached on the way down.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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