Analysts see '07 as Yahoo!'s year

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Yahoo! Inc. executives disappointed Wall Street last week when they said third-quarter revenue would come in at the low range of guidance. Shares fell 11% in a day.

Many analysts stuck by Yahoo! but also told investors that the stock will likely be a 2007 story when its Panama search-advertising initiative kicks in.

"We do not see any near-term positive catalysts for the remainder of 2006 given this slight pullback in spending and limits to search revenue growth from poor monetization," Bear Stearns analyst Alexia Quadrani said. "We feel 2007 provides potential good news for Yahoo!"

Yahoo! blamed its revenue problem on its recent weakness in ad sales in the auto and financial sectors.

Some were quick to calculate, though, that such a weakness seems to be Yahoo!'s alone and that it is unlikely to spill over elsewhere, like into Google Inc. Data from Nielsen//NetRatings seems to support that view.

The measurement service said that spending on Internet advertising in the U.S. in the auto sector has steadily risen from $4.4 million in the week ending July 9 to $6.3 million for the week ending Aug. 27.

Those same weeks saw spending rise incrementally in the financial services sector from $30 million to $41.2 million.

Nielsen//NetRatings, though, stresses its data is for the U.S. only and that Yahoo! is a global company.

The Interactive Advertising Bureau says the two categories, auto and finance, accounted for 22% of last year's online ad revenue industrywide (entertainment and media together were at 11%).

Merrill Lynch analyst Justin Post lowered his year-over-year growth projection for Yahoo!'s third quarter to 23% from 28% previously.

"Deceleration in revenue growth is consistent with trends over the past four quarters," he said.

When Yahoo! first said in the second quarter that Panama would be delayed to the first quarter next year, "Yahoo! became somewhat of an '07 story," UBS analyst Polo Tang said. Given the more recent news of light revenue, "It is now even more apparent."

The analyst, though, has a $39 price target on shares. Quadrani's target is $37, and Post reiterated his "neutral" rating on Yahoo! stock, which closed Monday at $25.29

For those looking for investment exposure in the Internet advertising space, Post suggests Google, shares of which he guesses will climb to $500 in the next year. They closed Monday at $403.98.
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