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Tuesday, September 19, 2006

Yahoo! Implodes, Investors Snap Up Shares (YHOO)

Yahoo!'s stock is down 13% on news that its ad revene from autos and financial services is slowing. It would seem to be a fairly benign bit of news, but it fuels the market's perception that Yahoo! is not longer a growth stock and that some of its key advertising categories will no longer show the ramp up they have seen in the last five years.

The company's CEO said that revenue would come in at the low end of estimates for Q3, putting the number closer to $1.1 billion than $1.2 billion.

But, the drop is probably an over reaction. The stock is now down to $26, well below its 52-week high of $43.66. The stock now trades at well under 7x revenue. The company's market cap is down over $25 billion over this period.

Cash flow from operations was $1.7 billion last year. That number is not likely to drop in 2006, and Yahoo! should announce its new search technology in the next quarter.

Over 45 million shares of Yahoo! have already traded hands today (12.10 PM EST), so at least some group of institutions on Wall St. seem to be betting that Yahoo!'s prospects are good, and good near-term. The announcement of Yahoo!'s new search initiative and any other piece of good news is likely to send the stock north again. There has been over $1.2 billion in trading capital in and out of the stock today.

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

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