Yahoo stock fell $11.13 to close at $131.69 after analyst Henry Blodget said he expects a "strong but slightly less robust" second quarter from the Santa Clara, Calif.-based company partly because of a fall-off in online advertising demand.
"We are not looking for as much upside in the quarter as in prior quarters, but we still think the company's performance and outlook will be encouraging," he wrote in a note released today.
Blodget said advertising growth for the company has slowed "as a result of reduced spending by cash-constrained dot-coms." But he said that "Yahoo will weather the softness better than most advertising-driven online companies."
Overall, Blodget expects solid growth from the company, but not the growth investors have seen in previous quarters.
His earnings estimates for the quarter, 10 cents per share, match the consensus forecasts of the 28 analysts surveyed by First Call. Yahoo earned 10 cents a share last quarter and 5 cents a share for the year-ago quarter.
Blodget also expects $247 million in revenues from the company, an 8 percent increase from the previous quarter and up 92 percent from a year ago. Last year in the second quarter, the company managed to boost revenues by 24 percent from the previous quarter. His estimated operating margin of 38 percent is down from the previous quarter.
Blodget hedged his bets, saying he thinks the company could surprise analysts and post earnings in the range of 11 cents a share to 12 cents a share on revenues of $255 million to $260 million.
Yahoo shares have traded between $250.06 and $55 during the past 52 weeks, and the stock has fallen about 37 percent since January.
According to Bloomberg, 32 analysts rate the stock at "buy" or above and three have a "hold" rating.
U.S. Bancorp Piper Jaffray senior analyst Safa Rashtchy agrees with Blodget that the drop in Yahoo's advertising revenue has caused concern but called it a "misnomer."
Rashtchy said Yahoo is entering the third phase of its growth, which will rely less on advertising revenue as it strives to become an e-commerce destination. In its first phase, the company created an Internet portal that "has everything and that's free and easy to use." The second phase made money off its portal traffic by generating advertising revenue.
Yahoo aims "to be the place to go on the Internet where you can find anything from a wristwatch to a business consultant," Rashtchy said.
The portal will try to broaden its audience into the corporate arena as well as the consumer world and market itself as the location where everybody goes for information.
Rashtchy forecasts the company's revenues will break $1 billion this year and reach $1.9 billion in 2002. He rates the company a "strong buy," although he acknowledges some risks.
"The risks surrounding Yahoo result from the company's strategy to reach into markets that they do not occupy, and the company's effort to become an open and global platform for any product or service," he said.