No Reason To Say Yahoo!

A day after announcing its CEO would step down, shares of the popular Internet portal Yahoo tumbled by nearly a fifth on the Nasdaq.

Shares of Yahoo, which had been halted for most of the day Wednesday on the Nasdaq for the release of that news, fell $3.94 to $17.06 in afternoon trading Thursday.

Tim Koogle, who has been with the company almost since it started, will step aside as its CEO when a replacement is found, but will stay on as chairman after that.

"I'm looking over the horizon and saying, when the economy starts to firm and Yahoo has weathered through this, what do we need to have in place so that we've got enough bench strength to scale continuously as we grow for the next five to 10 years?" the 49-year-old Koogle said in a conference call with financial analysts.

In addition to Koogle's semi-departure, the company announced Wednesday that its first-quarter operating earnings will come in at "approximately break-even," well short of Wall Street's expectations. Full-year results also could miss targets.

"The best dot-com can't make it, and that's troubling for the entire Internet economy," said Jordan Rohan, media analyst for Wit Soundview. "If Yahoo is only marginally profitable, then players like Terra Lycos don't stand a chance. And smaller players aren't even in the game."

Yahoo said Wednesday it was being hurt as the weakening economy forced advertisers to cut back on their marketing. The company also is encountering difficulties as its advertising base shifts from Internet businesses to more traditional companies.

Furthermore, Yahoo, which will formally announce earnings on April 11, said it expects its first quarter revenues to be in the range of $170 million to $180 million; a year ago, the company posted revenue of $228.4 million.

"Even though Yahoo is currently being affected by both the weak economy and a client base that is transitioning to traditional marketers, we remain confident that our business model will continue to demonstrate its effectiveness," said Susan Decker, the company's chief financial officer.

"We are evaluating our operating plans and investment priorities to determine which operational changes to pursue that will lead to long-term shareholder value," she added.

After starting as a search engine in the mid-1990s, Santa Clara-based Yahoo grew into a full-service information and shopping portal and at one point was the world's most popular destination on the Internet. Yahoo also was one of the Internet's biggest financial success stories, with revenue nearly doubling last year, to $1.1 billion, and profits of $291 million.

But the company's dependence on advertising, which accounted for nearly 90 percent of last year's revenue, has proven problematic in the dot-com meltdown. Also, the overall slowing of the economy has forced companies to slash their spending on marketing.

"All businesses in thUnited States are facing challenging economic conditions that have weakened further in recent weeks, and as consumer confidence and spending has deteriorated, a broad range of customers have delayed their spending across all media formats until their economic outlook improves," Koogle said.

Yahoo said Wednesday that it will buy up to $500 million of its outstanding shares over the next two years, a move that could boost the price. Shares of Yahoo are trading more than 90 percent off their 52-week high of $205.63, set last March.

Salomon Smith Barney analyst Lanny Baker said in a report that the company faces serious challenges, but still should weather what he considers a cyclical downturn, considering the company's excellent brand and $1.7 billion in cash.

Baker also found what he thought was a silver lining, pointing out that the conditions choking Yahoo will likely hurt its rivals even worse, narrowing the competition in the long run.

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