Yahoo's stock dropped 5-3/4 points to 48-3/16, from Friday's close of 53-15/16. But the dip is minimal given the value generated in recent weeks. This month alone, Yahoo stock gained 45 percent, to a high of 58.
Nevertheless, Volpe Brown Whelan analysts Derek Brown and Andrea Williams downgraded the stock to "neutral" from "buy." They did note, however, that positive news could push the stock higher.
While Brown said he and Williams don't issue price targets on "neutral" ratings, he said they "do not feel comfortable recommending to investors that they buy this stock at today's price levels."
"Our gut reaction is that Yahoo's multiple is so excessive that any possible good news coming out could already be in the stock," Brown added. "So there is a lot more risk than upside potential."
The analysts said there have been no fundamental changes in Yahoo's business to reflect the downgrade. Brown says Yahoo continues to view itself as the "unquestioned leader" in Web navigation, and takes for granted that it will continue to assume a substantial share of the advertising- and transaction-related revenues generated online.
Brown has a price target of 32 for Excite and 45 for Lycos. Infoseek (SEEK) is rated "neutral" and therefore does not have a target price. (Brown noted that Infoseek has been very quiet since its management turnover earlier this year. He says he expects to hear the company's strategy before the end of the year.)
Search engines have gained exposure in recent weeks as partnerships and exclusive agreements have opened additional revenue streams for such companies. Moreover, Brown pointed out, as more companies create online strategies, search companies will become increasingly influential as a direct route to the eyes of millions of Internet users each day.
"What is comes down to is that [search engines] are the primary online distribution vehicles," Brown said. "Investors and other companies are starting to see the potential."