Is Yahoo's move to fees risky business?
While the portal giant's decision to garner fees from auctions could add as much as a nickel a share to its 2001 earnings, analysts say the company could lose customers to eBay.
But Wall Street analysts also said Yahoo could initially lose auction customers to eBay.
Yahoo said Tuesday it will begin charging listing fees for its auctions Jan. 10. The fees will range from 20 cents to $2.25, depending on the item, and are less than the insertion fees charged by eBay. Yahoo will not charge any closing fees and will ban hate materials, which should ease legal pressure from France.
Wall Street analysts generally cheered Yahoo's move as shares closed
U.S. Bancorp Piper Jaffray analyst Safa Rashtchy said Yahoo's auction fees could add 5 cents a share in earnings in 2001. He maintained his "buy" rating.
Merrill Lynch Internet analyst Henry Blodget said he expects listing fees could contribute $30 million to $80 million in revenue in 2001, or 2 percent to 5 percent of projected revenue of $1.4 billion.
Rashtchy said the move signifies that Yahoo has reached a critical mass in auctions. He sees the company introducing fees on other services as well. Other announcements about pay services are expected to act as catalysts for the stock, particularly after the company reports earnings Jan. 10, Rashtchy said.
Goldman Sachs analyst Michael Parekh also called the step a move in the right direction. He said it was consistent with his investment thesis that Yahoo would focus on plans to create profitable businesses using its more than 185 million registered users.
While most analysts said Yahoo's decision to charge for its auctions was needed to diversify its revenue stream, many said the portal is likely to lose customers initially.
Blodget said some Yahoo users "will likely pack their bags and hoof it over to eBay or Amazon when fees are added," but said the fees are important to Yahoo's overall financial health.
Deutsche Banc Alex Brown analyst Jeetil Patel said Yahoo's move is a "near-term opportunity" for San Jose, Calif.-based eBay. He reiterated a "market perform" rating on eBay.
Patel said that based on historical trends at eBay, he believes Yahoo's auction count could be reduced by one-half, from 3 million listings to roughly 1.5 million listings, albeit with listing fees. eBay had roughly 3.7 million listings on its site as of Dec. 29.
Patel said eBay appears on track to hit fourth-quarter revenue and earnings forecasts of $123 million and 7 cents a share, respectively.
Although eBay may benefit initially, Yahoo is a threat overseas, he said.
"While we believe that Yahoo could represent a major threat to eBay's domestic service over the long haul, we believe that the biggest threat to eBay may lie in the international markets," Patel added.
News of Yahoo's auction fees comes as the company's shares have been hit with downgrades on concerns about slowing online advertising growth.
Wall Street expects Yahoo to talk about more revenue when it reports its fourth-quarter earnings. "They have to talk about it," said ABN AMRO analyst Arthur Newman. "They're stretching to find incremental revenue."
According to earnings tracking company First Call, Yahoo is expected to report earnings of 13 cents a share on sales of $310 million.
Jefferies analyst Frederick W. Moran reiterated his "buy" rating on Yahoo.
He expects revenue growth of about 6 percent sequentially and 54 percent year over year. Earnings are expected to be 13 cents a share. He also predicts that about 90 percent of revenues, or $279 million, will come from advertising and $34 million from business services and other revenue sources.