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Yahoo stock set to take a hit

The portal's earnings warning kills lingering hopes among investors for a quick turnaround, with analysts pushing back their timeline for a recovery.

Yahoo's earnings warning Wednesday killed lingering hopes among investors for a quick turnaround at the Internet bellwether, with analysts significantly pushing back their timeline for a recovery.

The Web portal said Chief Executive Tim Koogle will step aside; it also warned investors that it expects revenue of $170 million to $180 million and break-even profits. Wall Street had expected the company to make $232 million in revenue and a profit of 5 cents a share, according to the 26 analysts surveyed by First Call--numbers that had already taken into account drastic downward guidance by the company in January.

"There was a lot of talk that Yahoo was low balling," said Arthur Newman, an analyst at ABN AMRO. "They weren't low balling. In fact, the bar wasn't low enough."

The news sent the company's shares down $2.25, or about 11 percent, to $18.69 in after-hours trading. Before the Nasdaq Stock Market halted trading in its shares during regular hours, Yahoo had fallen $1.44, or 6 percent, to $20.94 and set a new 52-week low, far below its 52-week high of $205.62.

Analysts said Yahoo likely has a long and difficult transition from a high-flying dot-com to a traditional media company.

"It's going to be a challenging year in this space," said John Corcoran, an analyst at CIBC World Markets. "We just don't think this is a two- to three-quarter turnaround story...If people are investing on a 24 to 36 month horizon, then (Yahoo) could be an attractive investment, but it will trade sideways for the next few quarters."

Although speculation about a Yahoo buyout has circulated for months, analysts say the company will likely face the next year alone and seek a partner on its own terms.

To that end, Yahoo adopted an anti-takeover defense in its shareholder-rights plan, also known as a poison pill, which is intended to make a hostile takeover costly. The plan says a new class of preferred stock would be issued if someone buys 15 percent or more of the common shares.

The company also said it plans to use some of its $2 billion in cash to buy back $500 million worth of shares.

No matter what happens, Wall Street and the Internet industry will keep its eye on advertising. Although Yahoo has sizable cash reserves, it cannot withstand a prolonged slump.

Rob Martin, an analyst at Friedman Billings Ramsey, concluded: "In the short term, the stock will certainly trade down, but the question is, In the long term, is the worst behind them (or) will this trend continue?"