Is Yahoo! worth $60 billion? Let's back out the $790.5 million in cash for Paul's sake and rephrase the question. Is Yahoo! worth $59,209,500,000? The obvious answer is that Wall Street seems to think so. Then again, it thought the company was worth just $10 billion a little more than a year ago. The stock market undershot then. It has overshot now.
At more than 100 times sales and well over 500 times earnings, the air is awfully thin up here. Top- and bottom-line growth have been gradually slowing. In the latest conference call, even the company brands its already slowing revenues growth rate as "unsustainable."
Next year, sales and earnings are expected to climb 52% and 56%, respectively. On an absolute basis, that is pretty darn good. However, will the market claim, by the end of next year, that Yahoo! is worth more than 350 times that earnings multiple? When the prognosis will call for only 40% in growth the year after? Can investors continue to peg a $60 billion price tag, or closer to $70 billion on a fully diluted basis, on a company that won't lap the billion-dollar mark in trailing annual sales until the summer of 2001?
Rick, you're an idiot! Read your mind, didn't I? You think I'm naive if I boil this down to financial basics when the Internet is about so much more than that. What about the 385 million daily page views!? That's what Yahoo! was averaging back in September. The open architecture makes Yahoo! a global juggernaut even beyond the 21 countries it serves directly. So, take up a new hobby, Rick, because you just don't get it!
Fine. I think I'll work on a pilot's license and begin circumnavigating the globe with sponsor-paid banner ads dangling from my tail. The sky is the limit. I'll go public eventually. I'll be worth billions. Wait a minute, that won't work. If it did, every time you looked up there would be dozens of planes darting in and out of clouds with banners flapping in the wind.
Actually, that's exactly what has happened online. Yahoo!'s search engine rivals have grown stronger. In the past year alone, AltaVista, Excite, and Infoseek were bought out by CMGI <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMGI)") else Response.Write("(Nasdaq: CMGI)") end if %>, Excite@Home <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATHM)") else Response.Write("(Nasdaq: ATHM)") end if %>, and Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>, respectively. Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %>, like Yahoo!, has remained independent and has become an aggressive acquirer of smaller Internet sites. Big money has backed the competition. No one is going to back out anytime soon.
But, getting back to my Banner Wings Inc. project, I think the one fatal flaw is that people aren't looking up at the sky to be fed corporate marketing. They're outside in the first place because they probably need to get somewhere else. It's just not very effective.
That is the problem with Yahoo! Sidestep Koogle's charisma and bring back some numbers. From 385 million daily page views the company only generated sales of $155 million in the entire third quarter? What!? Yahoo! serves 385 million pages and that translates into less than $2 million in sales a day?
Banner Wings knows the problem. Users are coming to Yahoo! to find something. They plug in the search request, find what they want, and go away. If you're lost, a gas attendant will point the way -- he won't try to sell you on some beef jerky or a pi�a colada air freshener.
That is why, despite such renewed emphasis on its online mall, it only generated $100 million in direct transactions for the rent-paying merchants back in September. The Yahoo! user typically is an active e-shopper, smart enough to know the real way to buy online. She will head out to one of the many comparison sites like MySimon.com to find out which online store has the best prices and then enter the e-tailer through a coupon-spewing portal like Deal Catcher or Bargain Flix.
I'm not saying that Yahoo! is not a great company. It is. The problem is that it is misunderstood on many levels. Some argue that through its sheer size it will be able to dominate any field it enters. Not so. A year into auctions and the company can only manage a third of eBay's action. Some argue that the company is undervalued because it is a more popular online destination than Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>, but let's get real.
AOL and Mr. Softy are the first and third most-trafficked Internet sites but their valuations essentially stem from what is taking place beyond their home pages. If you round out the top five, by bringing Lycos and Go <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GO)") else Response.Write("(NYSE: GO)") end if %> into the mix, you see how out of whack Yahoo! is even in a peer group that many think is out of line to begin with.
With its recently announced Gamesville play site acquisition, Lycos will reach out to 47% of all Internet users. Yahoo!'s reach is at 59%. But get this: Lycos commands just $6 billion in market capitalization. Is Yahoo! worth 10 times more? If you argue that it is because it is the leading search engine, and being the best deserves a juicy premium, then also be quick to return the crown as AOL and eBay dominate the shopping and auction gateways, respectively.
In many ways, Don, the windmill is already rubble.
This Week's Duel
Related Links