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Yahoo lowers 2001 outlook, shares plunge

Yahoo! (Nasdaq: YHOO) met earnings expectations, but fourth quarter sales fell short of estimates and the company cut its outlook for 2001.

The portal posted a fourth-quarter profit of $80.2 million, or 13 cents a share, on sales of $310.8 million after the bell Wednesday. First Call Corp. consensus pegged Yahoo for a profit of 13 cents a share on sales of $315.1 million.

But the earnings were almost an afterthought because Wall Street was awaiting the company's outlook. Yahoo officials told investors to expect sales of only $1.2 billion to $1.3 billion in fiscal 2001, below previous estimates of $1.42 billion.

It's now expecting a profit of between 33 cents to 43 cents a share in the fiscal year, well below the First Call estimate of 57 cents a share.

On a conference call with analysts, CEO Tim Koogle said the company was hurt by a slowing economy and advertising market. Koogle said the company's guidance was conservative, and that he expected a rebound in the second half.

Investors didn't take the news well. Yahoo shares added 38 cents to $30.50 ahead of the earnings report before falling more than 20 percent to $24 in after-hours trading.

For the year, it raked in $290.9 million, or 48 cents a share, on sales of $1.11 billion, in line with analysts’ estimates.

The $1.11 billion in sales marks an 88 percent improvement from the fiscal 1999 when it posted a profit of $138 million, or 23 cents a share, on sales of $591.8 million.

Company officials said it expects to post a profit of between 4 cents to 7 cents a share in its first quarter, dramatically lower than the current consensus estimate of 13 cents a share.

Despite the lackluster outlook and disappointing fourth-quarter sales, some analysts were predicting much worse for the world’s largest Internet portal.

On the bright side, Yahoo said it averaged more than 900 million page view a day in December, comfortably above the 865 million to 880 million expected by analysts.

It recorded more than 180 million unique users in December, up from 120 million in the year-ago period and more than 60 million registered users logged on in December, up from 36 million last year.

Analysts were expecting gross profit margins of 85 percent to 88 percent in the quarter.

Operating margins were expected to come in between 35 percent to 36 percent.

The dramatic decline in online advertising hampered Yahoo in the quarter and led to the lowered guidance for fiscal 2001.

Despite its efforts to generate sales from other sources, advertising sales still respresents the bulk of its sales.

Yahoo recorded a one-time write-off for investments, primarly because of shares exchanged with Net2Phone (Nasdaq: NTOP), CFO Susan Decker said, during a conference call with analysts.

Yahoo posted a non-cash loss of $97.8 million, or 17 cents a share, because of the $138.5 million investment income loss.

While Wall Street was prepared for letdown this quarter, most analysts held out hope for sales in the neighborhood of $315 million to $320 million in the quarter.

Jefferies & Co. analyst Fred Moran predicted Yahoo would post sales of $313 million in the quarter.

Wit SoundView analyst Jordan Rohan was looking for sales of $320 million.

Back in November, Morgan Stanley Dean Witter analyst Mary Meeker suggested there was a 30 percent chance Yahoo would miss analysts’ profit targets this quarter.

Last quarter, Yahoo! topped analysts’ estimates when it posted a profit of $81.1 million, or 13 cents a share, on sales of $295.5.

Despite the less-than-dazzling fourth-quarter sales and outlook, Lehman Brothers analyst Holly Becker said there’s a good chance the stock will make a slight recovery.

“We believe that as long as Yahoo! reports 4Q sales of $296 million or better, versus consensus estimates of $315 million, and earnings roughly in line with estimates, the market may actually applaud Yahoo’s results,” she wrote in a research note. “Furthermore, while consensus estimates reflect a sluggish 1Q of $311 million in revenue, we think that any guidance for better than a 10 percent sequential decline would be a positive for the stock.”

Yahoo shares peaked at $225.63 in March before falling to a low of $25.06 in December.

Eighteen of the 32 analysts following the stock maintain either a “buy” or “strong buy” recommendation.