Yahoo! shares fall in midst of renegotiation

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Shares of Yahoo! Inc. tumbled 5.2% on Friday on published reports that the company, run by CEO Terry Semel, might have to renegotiate its Internet access relationship with AT&T at less favorable terms or lose it entirely.

AT&T's deal for selling high-speed Internet access with the Yahoo! portal reportedly expires in April 2008, and analysts figure it's worth as much as $3 per month per subscriber to Yahoo! or 8 cents per share in earnings each year.

But the Wall Street Journal, citing people familiar with the negotiations, said Friday that AT&T might choose a different partner or go it alone if Yahoo! isn't willing to give to it a bigger slice of the bounty generated from the partnership, especially considering that that broadband Internet access is an easier sell to consumers than it was when the Yahoo!-AT&T partnership was formed.

Goldman Sachs analyst Anthony Noto, who maintained his $31.50 price target on Yahoo! shares, estimates that the relationship this year is worth about $190 million in subscription revenue and $60 million in ad-share revenue to Yahoo!

Shares of Yahoo! fell $1.59 on Friday to $29.12 -- leading the decliners on The Hollywood Reporter's Showbiz 50 stock index -- though some on Wall Street defended the stock, noting that it had been up more than 25% so far this year so a sell-off might have been expected on any bit of bad news.

Jefferies & Co. analyst Youssef Squali said sellers overreacted Friday and advised clients to buy Yahoo! on the weakness. In any event, the analyst said that Panama, the recently released search-advertising platform from Yahoo!, is a bigger positive than the AT&T deal is a negative.

"The notion that the entire AT&T relationship is at risk is extreme," the analyst wrote in a research note Friday. "The most likely outcome in our view is a renegotiated partnership that would create new revenue streams to (at least partially) offset the loss of revenue to Yahoo!"

Squali kept his $38 price target on Yahoo!
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