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Wednesday, 11 April, 2001, 22:08 GMT 23:08 UK
Yahoo's next move

Wall Street will not only be keeping a keen eye on the direction of Yahoo's stock price following the release of its quarterly results on Wednesday - but also which direction the company intends to go in.

Analysts believe that much of the disappointment surrounding tech stocks has already been priced in.

The days of the totally free portal will have to end

With that in mind, few expect Yahoo stock to take a hit, especially as its results are slightly ahead of expectations.

Perhaps more keenly, Wall Street awaits what Yahoo intends to do now.

With ad rates for internet firms flat and failing to deliver the kind of revenue business models said they would, market watchers will keenly eye Yahoo's next move.

The ousting of chief executive Tim Koogle signals a directional change for the company.

Mr Koogle was a brand-name marketing genius, evolving Yahoo from a mere search engine into a internet portal that plugs consumers into everything from chatting to shopping.

New, improved Yahoo?

But Mr Koogle is not the only Yahoo executive to make an exit.

The company's former ad chief and general counsel have retired.

And last month, the company hired Gregory Coleman as executive vice president of North America to further shake things up.

Yahoo executives have responded to a predicament and have begun looking for new ways to bring in money.

Analysts have been quick to criticise Yahoo and its web counterparts for relying to heavily on advertising, a model that sought to increase traffic through free access.

After the bottom fell out of internet stocks, online advertisers fell flat, too, leaving dot.coms to find other sources of income.

"The days of the totally free portal will have to end," says Abhiskek Gami an analyst at William Blair & Co research.

Advertising revenue

Some analysts now say internet advertising revenue will drop about 20% this year - a blow Yahoo can ill afford, having already slipped behind AOL and Microsoft's MSN in the internet-portal race.

According to the company's own documents, Yahoo relies on advertising for 85% of its revenue.

"[Company executives] want a transition from an online media giant to a company that provides more services for a cost and a price to consumers," says Standard & Poor's analyst Scott Kessler who covers Yahoo.

"It's very, very important both from a realistic standpoint and also from perception that this is a stock, this is a company that is a leader," Mr Kessler says, adding that when a leader falls, it has a definite domino effect.

In recent weeks, the internet portal has announced new initiatives that are designed to offset the decline in ad revenues and move the company toward a more profitable business model that will include selling music.

For example, on Thursday, Yahoo said it had joined an alliance between Vivendi Universal and Sony.

The subscription-based plan, called Duet, is intended to take advantage of the popularity of downloading music from the web since Napster, a pioneer in the growth of online music, was ordered to stop members using its site to swap copyrighted music.

The music of Vivendi Universal and Sony Music will be available - for a fee - through the Yahoo website, the world's most widely used portal. The news of the deal sent Yahoo's share price soaring 20% in New York.

Stronger Yahoo?

But it is the unsettled US economy and the tech-sector selloff that has investors tentative about Yahoo prospects.

Yahoo's executives assure investors the initiatives are designed to halt the bleeding in Yahoo's stock price as well.

Yahoo's results for the three months to 1 March were a little ahead of analysts' expectations, with the internet portal turning a small profit, before exceptional items, instead of just breaking even.

Hardly inspiring but certainly better than the mainstay of many internet-only operations, which routinely record losses.

In the current climate, however, many analysts will br looking for more solid signs of an economic healing period and an improved online advertising market before they revise their ratings to "buy".

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See also:

11 Apr 01 | Business
Yahoo cuts jobs as profits dive
05 Apr 01 | Business
Yahoo joins online music venture
19 Mar 01 | Business
MSN builds UK lead over Yahoo
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