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Blodget cuts expectations for Yahoo

Merrill Lynch's influential Internet analyst is the latest to cut revenue estimates for the Web giant because of the "lousy" environment for online advertising.

Merrill Lynch's influential Internet analyst Henry Blodget Wednesday became the latest to cut revenue estimates for Web giant Yahoo because of the "lousy" environment for online advertising.

Blodget's dismal outlook sent shares of Yahoo down $6.38, or about 12 percent, to $37.50 by the 1 p.m. PST close of regular trading. The company's stock has plummeted more than 80 percent this year from its 52-week high of $250.06 largely over valuation concerns and cutbacks in online advertising spending.

Executive changes may be on the horizon for Yahoo as well. The company said it is looking for a head of sales because its vice president of sales and marketing, Anil Singh, plans to relinquish his position for a different role in the company.

In a note to investors, Blodget cut revenue estimates for Yahoo's first two fiscal quarters of 2001 but maintained his full-year expectations for the company. He cut revenue estimates from $324 million to $290 million in the first quarter and from $338 million to $330 million in the second quarter. But the analyst raised estimates for the remaining two quarters, increasing from $370 million to $380 million in the third quarter and from $410 million to $440 million in the fourth quarter.

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Mixed news for online advertising
Charles Buchwalter, VP, AdRelevance
"We think that the company will make Q4 and then reduce its forecast for Q1 and Q2, however, and we believe this could hit the stock near-term," Blodget wrote in his report.

Blodget's revenue cuts give further credence to the theory that a chilly winter for online advertising is upon us. The effect of the dot-com shakeout has cut considerably into the revenues of Internet companies that previously seemed impervious, such as Yahoo, and DoubleClick. And times will get tougher for these companies.

Last week, SG Cowen analyst Scott Reamer issued a report cutting Yahoo estimates. Reamer said traditional advertisers were holding back on their advertising spending, which could be especially damaging because Internet companies including Yahoo have said that traditional advertisers have been increasing their advertising budgets during the dot-com shakeout.

The tightening advertising market has also put pressure on companies to diversify their revenues away from online advertising. Yahoo chief executive Tim Koogle said in November that the company wouldn't rule out charging a fee for "premium services" on its site. Long the torchbearer of the free, ad-supported business, Yahoo and other portals could be forced by the souring environment to find more consistent revenue streams.

Blodget's report underscored that the advertising crunch would not become a long-term issue. He cited several reports predicting more growth in the future, such as a study by Universal McCann predicting Internet advertising will grow 65 percent this year to $3.2 billion and 60 percent in 2001 to $5.1 billion.