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Yahoo
Rank: 19 Ticker: YHOO Market value: $40 billion
WHY IT'S HOT: Yahoo has been riding the boom in online advertising.CHALLENGES AND OPPORTUNITIES: Yahoo seems to be in a cooling phase. Its stock has dropped from $43 to $29 since early January. Part of the problem is that expectations coming into the year were so high. Many observers - Fortune among them - believed Yahoo was on the verge of transforming the online advertising biz. But then Yahoo's much-ballyhooed new search-advertising system, a.k.a. Project Panama, which is supposed to help advertisers better target consumers, was beset by delays. It's now expected to debut in the fourth quarter. Another concern is the gap between page-view growth and revenue growth. "Essentially, while traffic growth was very strong, it did not translate into comparable revenue growth," notes Paul Keung, an analyst with CIBC World Markets. A successful launch of the new search system could make Yahoo more competitive with Google. That said, Yahoo is less reliant on search than Google. As Yahoo CEO Terry Semel told Fortune in August, "Over the past four quarters Yahoo was the only major Internet company that experienced people spending significantly more time on its site doing more things." More time spent on Yahoo's Web site means more page views, which mean more opportunities for Yahoo to sell banner ads. STOCK OUTLOOK: The consensus among analysts is that it will average earnings growth of 27 percent over the next five years, so it's hard to see why Yahoo deserves a premium P/E of 53. While Panama may be a smash, the brief history of the Web is filled with fizzled innovations that were originally billed as game changers. We'd wait to see how the new search system performs before buying Yahoo shares. |
