COMMENTARY -- Yahoo! (Nasdaq: YHOO) should not have fallen in the first place yesterday.
The most visited Web portal's stock is bouncing back this morning, but yesterday it did its best Jack-and-Jill imitation, tumbling almost 12 percent. Several observers blamed the revenue warning from Priceline (Nasdaq: PCLN) for dragging down Yahoo!, but I'd give investors more credit than that.
Priceline and Web portals are completely different businesses. I doubt people are judging Yahoo! on airline ticket sales, especially considering that some of Priceline's rivals in travel -- Expedia (Nasdaq: EXPE), The Sabre Group (NYSE: TSG) and Sabre's Travelocity.com (Nasdaq: TVLY) unit come to mind -- didn't lose nearly as much as Yahoo!
So forget about the Priceline effect. At most, it was an excuse to complete a YHOO sell-off that's been going on for the past month. Today's action demonstrates that more than anything else: shares of Yahoo were up more than 7 percent by early afternoon.
People have been nervous about Yahoo! ever since Lehman Brothers fretted about dot-com advertising. Other analysts have weighed in on both sides over the last four weeks, with the latest opinions coming today in the form of at least three bullish notes from U.S. Bancorp Piper Jaffray, Bear Stearns and Merrill Lynch.
The general gist: relax, Yahoo! won't miss third quarter estimates.
Maybe that reassured folks enough to come back. But they were going to return anyway.
Regardless of how what you think about Internet stocks as a whole, you can't deny that two companies have been the runaway leaders virtually since the Web became a commercial medium: Yahoo! and America Online (NYSE: AOL). Everyone knows that, which is why their shares remain the most highly valued in the sector by a huge margin.
Obviously AOL is mired in questions about its Time Warner merger, so AOL stock has been stuck in a range for the last several months. A YHOO chart, on the other hand, shows a magnified version of market movements:
With a couple of exceptions, when the Nasdaq drops, Yahoo! drops a lot more, and vice versa.
For all the talk about how Wall Street has moved back to an investor's market, traders are still playing with some stocks. Clearly Yahoo! is one of those cases, or else it wouldn't be so volatile. Not much long-term thinking going on here.
And I suspect that's going on at the moment. Traders believe they drove down Yahoo! enough with yesterday's final flourish, and now you're seeing them building it back up for another profit-making ride. Or so they hope.
As long as Yahoo! keeps its advertising and traffic lead, it's going to be much more highly valued than anything else on the Internet. We can wonder about the quality of the company's customers, or question the whole value of Internet ads, but if you believe in Internet content aggregation, you have to start with Yahoo! or AOL.
Plenty of folks share that belief, and until that changes -- it would take more than a blip or two -- Yahoo! will never stay down long, at least relative to the rest of the market. 22GO>