The company has the best name in its business, enviable market share and $1.7 billion in cash. So why is there suddenly a Yahoo deathwatch?
Blame our manic-depressive stock market. Having wildly overvalued Yahoo during the dot-com stock mania that peaked exactly a year ago, on March 10, 2000 -- at its height in Jan. 2000, the company's stock price approached $250, giving it a valuation well over $100 billion -- the market has now charged helter-skelter in the other direction, leaving Yahoo at less than one-tenth its high.
Such stock declines carry a price, and Yahoo paid it last week as it announced that its iconic CEO, Tim Koogle, would step aside. Yahoo also announced significantly lower revenues than expected for the current quarter and said it would probably only break even this year.
Yahoo's news triggered a media frenzy of Yahoo-whipping utterly out of proportion to the company's state. "Yahoo struggles to survive," the company's hometown paper, the San Jose Mercury News, declared in its lead headline -- as though Yahoo were some underfunded, two-bit e-commerce outfit that just discovered people won't buy cat litter online. Market analysts -- those same geniuses who pumped up the Internet stock balloon with the hot air of their "buy" recommendations -- are now fleeing in terror from YHOO, calling it "just another dot-com implosion."
"For five years this was the one company you could go to sleep at night not worrying about," Paul Noglows, an analyst with J.P. Morgan H&Q, told the New York Times. "You knew they would outperform and outexecute. Now it will take a long hard building process to restore credibility."
An analyst, talking about credibility! If anyone has a credibility problem, surely it is the entire profession to which Noglows belongs.
Remember, Yahoo still expects revenues of $800 million this year, and has been consistently profitable while other dot-com flashes-in-the-pan burned through their venture capital with nothing to show for it but some outri TV commercials. Yahoo isn't perfect, but it has maintained its lead as the top Web portal by consistently putting its users first, and its sites remain models of simplicity and service.
All of which raises the obvious question: Plainly, the market's pundits were way off a year ago, at the pinnacle of Net stock mania; so why should we put any more stock in them now? Their downside is looking just as insane as their upside.
Yahoo's revenues are off during this economic slowdown. Guess what? So are revenues at Dow Jones, Knight-Ridder and the New York Times. We are in a near-recession, and the ad-supported media businesses are notoriously and reliably sensitive to such waverings of the economy's needle -- since their customers' ad budgets are the first expenditures to get slashed when times are tight. (Full disclosure: Obviously, I work for an Internet company that, like Yahoo, derives the majority of its revenue from online advertising.)
The analysts and the market that listened to them somehow bought the blather of the new economy evangelists -- "the business cycle is history" -- and assumed that the Internet, unlike any previous medium, would see one long unbroken upward growth curve. Now that such a view is untenable, they are declaring that the Internet is a dog. Eventually, they need to wake up and accept that the Internet is a medium -- one with its own unique wrinkles and special traits, but one that is no more immune to the fluctuations of the economy than any of its predecessors.
Now, some observers have maintained that the Internet is a technology business and as such follows different rules from the media industry. And to be sure, there are lots of Internet companies that build and sell software. But that doesn't exempt them from the vicissitudes of the business cycle. The technology industry is notoriously volatile and cyclical, and if you look more closely at its long-term boom over the last quarter-century you will find a telltale repetition of peaks and troughs.
This is not the first time the Net industry has had to deal with a downturn, though it is certainly the most severe: In 1998 economic tremors caused by the Asian financial crisis knocked the market off its feet for several months, and in late 1996 -- after the euphoria of the initial wave of Net IPOs, led by Netscape, wore off -- we were treated to a spate of articles predicting the "death of the Web." The best known, a satire in Wired by Chip Bayers headlined "The Great Web Wipeout," has gotten less and less funny over the past year.
I wrote a piece back then, in November 1996, titled "After the Gold Rush" -- imagining, naively, that the Web had already passed through its boom-bust cycle and could settle into a more mature phase. Silly me. As it turned out, the real gold rush was still just a glimmer in the eyes of thousands of day-traders-to-be.
Now, with most of the gold having proven illusory, the real business of building useful, sustainable sites, products and services comes back into focus. For some companies -- and I'd argue that Yahoo has always been among them -- it never left sight.
But the financial media and the analysts and everyone else who cheered on the Internet bubble need some way to take out their frustration -- and divert attention from their own role in the speculative orgy. Thus this game of kicking Yahoo while it's down.
Everyone, it seems, wants to kick somebody about the Net stock meltdown. Over at Maxim's Web site, the wags have created a crude Flash game à la "Space Invaders," in which assorted "day traders, stockbrokers, and former dot-com millionaires" plunge down the sides of an office tower to bloody death unless you catch them.
Juvenile? Sure. But a sign of hope, perhaps -- this must be the bottom.