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Monday, October 30, 2006

The Grinch Stole Yahoo!'s Christmas

Merrill Lynch upgraded Yahoo! from "neutral" to "buy" on the theory that the stock has fallen far enough and that the holidays will help salvage the big internet company's poor performance. Merrill also thinks that 2007 could be helped by Yahoo!'s new advertising search platform. It seems a little late to be upgrading Yahoo!.

If its last quarter is any indication, it may have better numbers in Q4, but not compared with Google, and possibly not compared to it own Q4 in 2005. The problem facing Yahoo! is that it is losing share in the search market and that its display ads are dropping in key categories.

Christmas is not going to turn that around. Google's AdSense product has such a huge lead inthe marketplace that even if Yahoo! builds a better mouse trap, there is no guarantee that advertiser will automotically go to the work to move to a new product. It is much like Google's foray into online payments. PayPal from EBay has not lost much, if any, share to it. As a matter of fact, PayPal was the big earnings winner for Ebay last quarter.

Santa is not giving Yahoo! anything this year. Except, maybe, a lump of coal.

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

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