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Yahoo! falls to 2-year low
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November 21, 2000: 7:28 p.m. ET
Web portal hurt by comments from Morgan's Meeker, Merrill's Blodget
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NEW YORK (CNNfn) - Shares of Yahoo! Inc. tumbled Tuesday to their lowest level in two years, after an influential Morgan Stanley analyst said that the Internet portal has a 30 percent chance of missing revenue targets in the next few quarters.
Yahoo!'s shares and those of competing Web portal and online service America Online also were hurt by negative comments from Merrill Lynch analyst Henry Blodget, a long-time bull on Web stocks.
By the close of trade, Yahoo! (YHOO: Research, Estimates) had plunged $7.19 to $41.69, or a 15 percent drop, reaching a level it hasn't seen since November 1998. AOL (AOL: Research, Estimates) lost $4.09 to $43.
 Morgan Stanley analyst Mary Meeker issued a research report commenting about Yahoo!'s effort to broaden its revenue base beyond advertising and capture revenue from its rapidly growing customer base. In that note, she said that investors have been concerned that Yahoo! would miss revenue expectations at some point over the next three quarters.
"As evidenced by the poor performance of Yahoo! stock, it appears the market is very nervous about a Yahoo! revenue miss in the fourth quarter and/or the first and second quarters, and in markets like these, one must always consider the self-fulfilling prophecy," Meeker said. " ... We handicap a miss at 30 percent."
Meeker said that 90 percent of Yahoo!'s revenue is driven by Internet advertising spending, a market she characterized as "tough and wacky."
"Among Internet leaders, we think Yahoo!, owing to its revenue concentration, is most at risk to Internet ad spending trends," Meeker said.
Blodget echoes online advertising concerns
Merrill's Blodget echoed Meeker's online advertising concerns and, in a research note issued Tueday, said that the short-term view for advertising supported Web companies remains shaky.
"We continue to believe in the long-term growth of online advertising," Blodget said. "Near-term, however, we don't believe the market will bottom out until the first quarter, and the worst is yet to come."
In the same research note, Blodget said that the Web market "has hit the point of decreasing returns." "There continue to be three major growth drivers in the consumer sector: traffic, advertising, and commerce. Traffic growth in the U.S. continues to slow, as more than 50 percent of the total market is already online. More importantly, we estimate that more than 80 percent of disposable income is already online," Blodget wrote.
Blodget said that AOL remains the most defensive stock in the Web group. Web retailing giant Amazon.com (AMZN: Research, Estimates) "hit an inflection point in the third quarter and fundamentals will continue to improve," he said. Online auction leader eBay (EBAY: Research, Estimates) "remains expensive in light of decelerating merchandise sales growth, but should be good long term," he added.
Meeker's concerns about Yahoo!
Meeker said that her long-terms concerns about Yahoo! are not related to online ad spending, but rather her concern that the company is not spending enough to expand its global brand, is not moving aggressively enough to broaden revenue streams, and has become too insular.
"The beauty or scary thing about Yahoo! (depending on your perspective), is that is has created this big ... base (and database) of users -- more and more of them keep going to the site a lot, they keep doing things with Yahoo!'s integrated sets of services and the users become dependent on the site and services and they don't pay a cent for them," Meeker said.
"The true value of the site and services is what users are willing to pay for them -- and here Yahoo! has nothing but high margin upside for trying," she said.
Meeker said that Yahoo! needs to move into the middle of site and user interactions and has begun to move aggressively in that direction. 
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