Yahoo!, Inc. (YHOO)

NetscribeMedia (20.24) Submitted: 4/26/07 2:35 AM : Start Price: $27.98 YHOO Score: 15.28

Will David slay Goliath? Currently, this seems to be the popular question in the internet marketplace. The battle for the lucrative search engine advertising market is heating up. Yahoo, however, seems to be lagging behind Google. Speculation is rife that the Yahoo-AT&T brand sharing deal is on shaky ground. The deal, which involves pre installation of Yahoo branded software on the computers of AT&T DSL and broadband customers, accounts for approximately 5% of Yahoo’s annual revenues. Google has a similar alliance with Dell, where Dell gets paid for the software installation. AT&T is apparently having second thoughts about its alliance and a severance of the contract would severely affect Yahoo’s 2007 results.





On the brighter side, Yahoo has entered into a multi year deal with Viacom which gives them the exclusive rights to display search and content- related text ads on 33 Viacom web sites. MTV.com, VH1.com, Nickelodeon.com, Comedycentral.com and BET.com are some of the popular brands among these web sites. Viacom had earlier lodged a $1 billion copyright infringement lawsuit against Google. This makes the Yahoo-Viacom alliance look all the more ominous for Google.





Yahoo’s Panama is in direct competition with Google’s Adsense program. Viacom’s partnership with Yahoo could help the latter become a formidable threat to Google’s search engine advertising hegemony. Google had a 48.1% search market share in February, 2007 while Yahoo’s market share was flat at 28.1%. Google has already beta tested a new pay-per-action advertising model to attract more advertisers. It will take more than the Viacom deal for Yahoo to catch up with Google.





Yahoo’s 2006 revenues increased 23.1% year-over-year to $6.4 billion. The gains from the revenue increases were, however, more than offset by huge expenditure increases Stock compensation increase was the primary reason for this expense growth. The 22% EBITDA increase to $1.9 billion should, nonetheless, be a source for some comfort.





A share price that is at the high end of the 52 week range and a high P/E multiple indicates that Yahoo’s shares are overvalued. The company is therefore predicted to have a tough year ahead.

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