After the close of trading Wednesday, Internet uberportal Yahoo! (YHOO) warned that its first-quarter earnings and revenue will fall well short of Street expectations. The company also said it's launching a search for a replacement for Chief Executive Tim Koogle.
The announcement marked an acknowledgement that the online advertising market is turning out to be far softer than even the company's own recently diminished expectations. But in some ways, the news itself was overshadowed by the swirl of rumor and speculation that surrounded the company for hours: Yahoo's disclosure came after a highly unusual halt in trading of its stock by Nasdaq for virtually the entire day.
The turmoil began Wednesday after Yahoo suddenly pulled out of a Merrill Lynch Internet conference. In a widely cited note, Merrill Lynch Internet analyst Henry Blodget explored the possible reasons for Yahoo's no-show: "The explanation will likely be one of four usual possibilities: 1) impending earnings preannouncement/restructuring, 2) major acquisition, 3) take-out or strategic investment, and/or 4) major management change."
In response, the Nasdaq halted the stock at $20.94 shortly after the open, and Yahoo didn't trade again until 5:21 p.m ET in the after-hours market. In the meantime, traders took Blodget's list of possibilities and ran with it. Many speculated that some sort of merger or acquisition news was in the pipeline. Maybe Yahoo was buying eBay (EBAY). Or maybe Germany's Bertelsmann was buying Yahoo. Others, pointing to management's adoption of a poison pill last week to fend off hostile offers, figured that a downward revision of estimates was instead in the offing — one that could potentially send the stock spiraling even lower. Shares are already down a staggering 90% from their all-time high of $205.63 set back on March 22, 2000. And that latter guess, of course, proved to be the correct one. When Yahoo finally opened, the stock fell an additional 11% to $18.72 in heavy after-hours trading.
But why the unusual halt? Nasdaq operating procedures give it wide leeway to stop the trading of a stock. It isn't unusual for a company to ask Nasdaq for a halt just before announcing some news. But it's rare for a company's shares to remain frozen all day pending a news announcement that doesn't come until after the market is closed. Nasdaq may do that, for instance, if it suspects some unusual trading activity in a stock. But that doesn't appear to have been the case with Yahoo. And some traders are now suggesting that Nasdaq may have overreacted.
Be that as it may, at about 5 p.m, Yahoo finally revealed that it will now report first-quarter revenue of $170 million to $180 million — 23% less than the mean First Call/Thomson Financial view of $232.6 million. Moreover, citing "the weakening macroeconomic climate, and the resulting shortfall in marketing spending by customers due to the economic uncertainty," management is now expecting the company to break even from operations for the first quarter instead of earning five cents a share.
Yahoo, according to CEO Koogle, is just feeling the pinch along with everybody else. "All businesses in the United States are facing challenging economic conditions that have weakened further in recent weeks, and as consumer confidence and spending has deteriorated, a broad range of customers have delayed their spending across all media formats until their economic outlook improves," he said.
But it isn't only a downturn in online advertising that's causing woes for Yahoo. The stock market's slide has wreaked havoc with some early-round investments the company made in a number of Internet and technology companies. Yahoo, for instance, was an early investor in the online grocer Webvan (WBVN) before the company went public in November 1999. Yahoo, according to corporate reports, purchased at least 4.3 million shares in Webvan for approximately $10 million, and Koogle was appointed to the company's board of directors. But with Webvan — a former Internet highflier — now trading for less than 50 cents a share, Yahoo's investment looks about as appetizing as a package of stale bread. Recently, Yahoo has been selling off big chunks of shares in Webvan for a mere pittance. In the past few months, it's either registered to sell or sold some three million shares for an estimated $1.8 million.
In Wednesday's announcement, the company added that its board of directors has retained executive-search firm Spencer Stuart & Associates to look for a new CEO; Tim Koogle will remain chairman. The management shake-up comes at a time when the Internet portal has been hit with a wave of high-profile defections. Last week the head of Yahoo! Canada announced his resignation. And earlier this year, the directors of Yahoo's overseas operations in Europe and Asia also left.
The steep slide in Yahoo's stock may have something to do with the company's apparent difficulty in retaining top personnel. But at least one buyer spots an opportunity in Yahoo's depressed shares. On Wednesday, Yahoo also said it would use this multiyear low in its market value to launch a stock-buyback program worth as much as $500 million over the next two years.
The announcement marked an acknowledgement that the online advertising market is turning out to be far softer than even the company's own recently diminished expectations. But in some ways, the news itself was overshadowed by the swirl of rumor and speculation that surrounded the company for hours: Yahoo's disclosure came after a highly unusual halt in trading of its stock by Nasdaq for virtually the entire day.
The turmoil began Wednesday after Yahoo suddenly pulled out of a Merrill Lynch Internet conference. In a widely cited note, Merrill Lynch Internet analyst Henry Blodget explored the possible reasons for Yahoo's no-show: "The explanation will likely be one of four usual possibilities: 1) impending earnings preannouncement/restructuring, 2) major acquisition, 3) take-out or strategic investment, and/or 4) major management change."
In response, the Nasdaq halted the stock at $20.94 shortly after the open, and Yahoo didn't trade again until 5:21 p.m ET in the after-hours market. In the meantime, traders took Blodget's list of possibilities and ran with it. Many speculated that some sort of merger or acquisition news was in the pipeline. Maybe Yahoo was buying eBay (EBAY). Or maybe Germany's Bertelsmann was buying Yahoo. Others, pointing to management's adoption of a poison pill last week to fend off hostile offers, figured that a downward revision of estimates was instead in the offing — one that could potentially send the stock spiraling even lower. Shares are already down a staggering 90% from their all-time high of $205.63 set back on March 22, 2000. And that latter guess, of course, proved to be the correct one. When Yahoo finally opened, the stock fell an additional 11% to $18.72 in heavy after-hours trading.
But why the unusual halt? Nasdaq operating procedures give it wide leeway to stop the trading of a stock. It isn't unusual for a company to ask Nasdaq for a halt just before announcing some news. But it's rare for a company's shares to remain frozen all day pending a news announcement that doesn't come until after the market is closed. Nasdaq may do that, for instance, if it suspects some unusual trading activity in a stock. But that doesn't appear to have been the case with Yahoo. And some traders are now suggesting that Nasdaq may have overreacted.
Be that as it may, at about 5 p.m, Yahoo finally revealed that it will now report first-quarter revenue of $170 million to $180 million — 23% less than the mean First Call/Thomson Financial view of $232.6 million. Moreover, citing "the weakening macroeconomic climate, and the resulting shortfall in marketing spending by customers due to the economic uncertainty," management is now expecting the company to break even from operations for the first quarter instead of earning five cents a share.
Yahoo, according to CEO Koogle, is just feeling the pinch along with everybody else. "All businesses in the United States are facing challenging economic conditions that have weakened further in recent weeks, and as consumer confidence and spending has deteriorated, a broad range of customers have delayed their spending across all media formats until their economic outlook improves," he said.
But it isn't only a downturn in online advertising that's causing woes for Yahoo. The stock market's slide has wreaked havoc with some early-round investments the company made in a number of Internet and technology companies. Yahoo, for instance, was an early investor in the online grocer Webvan (WBVN) before the company went public in November 1999. Yahoo, according to corporate reports, purchased at least 4.3 million shares in Webvan for approximately $10 million, and Koogle was appointed to the company's board of directors. But with Webvan — a former Internet highflier — now trading for less than 50 cents a share, Yahoo's investment looks about as appetizing as a package of stale bread. Recently, Yahoo has been selling off big chunks of shares in Webvan for a mere pittance. In the past few months, it's either registered to sell or sold some three million shares for an estimated $1.8 million.
In Wednesday's announcement, the company added that its board of directors has retained executive-search firm Spencer Stuart & Associates to look for a new CEO; Tim Koogle will remain chairman. The management shake-up comes at a time when the Internet portal has been hit with a wave of high-profile defections. Last week the head of Yahoo! Canada announced his resignation. And earlier this year, the directors of Yahoo's overseas operations in Europe and Asia also left.
The steep slide in Yahoo's stock may have something to do with the company's apparent difficulty in retaining top personnel. But at least one buyer spots an opportunity in Yahoo's depressed shares. On Wednesday, Yahoo also said it would use this multiyear low in its market value to launch a stock-buyback program worth as much as $500 million over the next two years.
