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Profits don't help Yahoo stock

Despite a stronger-than-expected quarter, Yahoo's stock tumbles as low as 9 percent in morning trading.

Yahoo (YHOO) may have surprised Wall Street with a stronger-than-expected first quarter, but the company got a surprise of its own when its its stock tumbled as much as 9 percent in morning trading.

Analysts pointed to investors' profit-taking and, to a lesser degree, some concern over the company's utilization of inventory --or page views a day that are sold to advertisers.

Shares of Yahoo fell as low as 31-3/8 this morning before closing at 32-3/4, down 1-3/4 from yesterday. The search engine also generated volume of nearly 1.5 million shares.

"Yahoo has had a great run on its stock since mid-March and we may be seeing some profit-taking on the news," said Jamie Kiggen, an analyst with Cowen & Company. "There's a lot of momentum investors in the stock and if they think there won't be anymore news for awhile to move the stock, then they just take their profits."

Yahoo reported yesterday net profits of $210,000, or 1 cent a share, compared with net earnings of $81,000, or zero per share, a year ago. Wall Street had expected the company to post a loss of 3 cents a share for the quarter.

Montgomery Securities analyst David Readerman said this pattern among investors selling shares after tech companies post stronger-than-expected quarters may continue until the majority of earnings for the larger companies like Microsoft and Intel are announced.

"We're seeing a general market environment where stocks are traded up in anticipation of the [quarterly] numbers, but then fall off after they're reported," Readerman said, pointing Seagate as a recent example. (See related story.)

Meanwhile, Cowen and Company's Kiggen said Yahoo's sell-off may also be the result of investors misreading Yahoo's performance.

"Some investors expressed concern about Yahoo's inventory utilization, which was down over the December quarter," Kiggen said. "But that decline was a function of the traffic they generated during the quarter."

Kiggen likened the event to a car dealership receiving twice the number of cars usually shipped, but having roughly has the same number of sales representatives to sell the vehicles. That utilization figure, as a result, would be down.

Yahoo saw a 50 percent increase in traffic to an average of 30 million page views per day in March.

But the increase in traffic to its sites is what drives advertising revenues to Yahoo's pocketbook.

Kiggen added that shares of other search engine companies may get a boost from Yahoo's results. But in morning trading Infoseek (SEEK) and Excite (XCIT) dipped down after a two-day uptick. And Lycos (LCOS) was up, after spending a couple of days down.