Stox Dude : Yahoo...bohoos Nasdaq
Yahoo (YHOO), the leading Internet media company, hit the market last night with a big profit warning and said its chief executive would step down. The Street yelled "ouch" and greeted the company with a host of downgrades. Yahoo's shares fell sharply to a new 52-week low.
In addition, more and more analysts downgraded entire sectors. Salomon Smith Barney hit the data storage industry while J.P. Morgan H&Q talked bearishly about business software.
The result? By 9:45 a.m., the Nasdaq was down only a measly seven points. The Dow was rising by 15 and the S&P was ahead by two. Banks, retailers and brokers rose as some bet the economic erosion could be bottoming out. Others preferred to buy economic safe-haven stocks like food and utility shares.
The absence of a rout was more evidence that investors feel uncertainty over profits is now the norm and they've already sold stocks down to levels that reflect the new reality. Major indexes have risen for three days in a row despite bad news and some on the Street remain hopeful that more interest rate cuts from the Federal Reserve will spur a recovery -- if not this year than next.
As the Fed's March 20 policy meeting gets closer, stocks could rise on expectations for another half-point rate cut.
Still all the bad news was hard to ignore today. After its stock was halted by the Nasdaq for nearly a full day, Yahoo said a sharp decline in advertising would cause it to merely break even in the first quarter, missing expectations of a five-cent a share profit. Yahoo chairman and chief executive Tim Koogle said he would give up the CEO job as the company searches for an outsider to beef up its management ranks.
Traditional media companies like the New York Times (NYT) and Dow Jones (DJ), co-owner of this Web site, have also slashed their profit projections in recent days as advertisers cut back spending. However, this morning, analysts said they were surprised at the depth of Yahoo's plight and said it has some work to do to regain the faith of the Street.
"We believe the rebuilding process will likely be a long one and, in the absence of significant quarterly outperformance, we do not see a catalyst to spur renewed investor confidence in the Yahoo story in the near term," wrote J.P. Morgan H&Q's Paul Noglows in downgrading the stock to Market Performer from Long Term Buy.
Other analysts merely took down their profit estimates, expressing hope for the long term. "The investment thesis of owning the best global platform of Internet users remains intact," said Bear Stearns' Jeffrey Fieler, in maintaining a Buy rating.
Yahoo's shares tanked 17% to $17.01. Other Internet leaders fell as well. Amazon.com (AMZN) and Ebay (EBAY) fell 2%.