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Morning News

Yahoo! Expected to Falter in the Future

Aired January 11, 2001 - 10:35 a.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LEON HARRIS, CNN ANCHOR: It's been a very volatile time for tech stock, so all eyes were on Web giant Yahoo! when the company reported its fourth-quarter earnings. Now profits were in line with analysts's estimates at 13 cents a share. That's compared with 9 cents a year ago. But Yahoo! says to expect lower numbers in the future, and that has caused quite a bit of consternation.

Cory Johnson from "The Industry Standard" magazine joins us now to talk about what's ahead for Yahoo! and for many of those who are holding Yahoo! stock this morning.

What do you make of what we heard here? I saw where one analyst said perhaps what Yahoo! is doing is sandbagging here, basically putting out the bad news now and laying out some low expectations, which they know they're going to meet or beat later on in the year?

CORY JOHNSON, "THE INDUSTRY STANDARD": That's a pretty optimistic spin on some pretty bad news here. I mean, really what Yahoo! did yesterday is they came out and said they had barely met Wall Street's expectations for the previous quarter, and next year is going to be a full-on unmitigated disaster. So if you want to put a positive spin on that, I'm sure some analysts out there are trying to defend the bad calls they made on this stock. But there's really no way to look at what Yahoo! said last night as anything but bad news.

HARRIS: Now how does this play out for Internet companies? Does this drag them down further, or are they the ones that are dragging Yahoo! down?

JOHNSON: Well, I think what's really interesting here is the future of Yahoo! in itself. You know, Yahoo! is the 800-pound gorilla in the Internet. Between AOL and Yahoo!, those are primary destinations on the Internet. So as goes Yahoo!, so goes the rest of the Internet. And the biggest message here is that advertising on the Internet is going to be really tough in 2001. And that's really not what we were hoping for.

HARRIS: Do they have the financial strength to weather this for a while?

JOHNSON: I think they've got the financial strength to get through this. Certainly, a lot of other Internet companies are already seeing the delistings pile up on the Nasdaq. Internet companies are going south, like Pets.com. Webvan is in serious trouble. A lot of what we were sort of calling the blue chips of the Internet are toast now, and it's a very dramatic change.

But I think the more interesting thing here is the growth prospects for Yahoo!. You know, we expected all these Internet companies to continue to grow rapidly, at least for the next couple of years. Here's Yahoo! saying in 2001 they might not grow at all. And that's terrible news for the Internet.

HARRIS: So what do you think that's going to mean for the general class of stocks?

JOHNSON: Well, I think it's certainly bad news for technology stocks. It's a mixed bag. They're not saying it's game over. I mean, they did report a record quarter yesterday. But when they come out and say 2001 revenues are going to be barely increased over year 2000 revenues, it's a different notion of what we expected the Internet and what we expected from Internet stocks.

HARRIS: All right, how long do you think it will take before they turn this around?

JOHNSON: Well, you know, advertising mirrors the entire economy. And we're showing that even the Internet is not immune to the slowdown in the economy. So what we've really got see here is an increase in the economic production of this country. You know, when companies face these really difficult decisions about, hey, do we lay off employees? Do we close down certain operations, or do we cut advertising, well, it's an easy answer. Advertising is always the first thing to go...

HARRIS: Exactly.

JOHNSON: ... and so media companies feel it first.

HARRIS: You got it. You got it. Cory Johnson, thanks much for the insight. Talk to you later on, take care.

JOHNSON: Thank you.

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