FOOL PLATE SPECIAL
An Investment Opinion
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Veverka asks some solid questions of CEO Tim Koogle, the pair engaging in an interesting debate. (The article might have been worth two gold stars if not for the statement that its status as an Internet blue chip would be called into question simply by a four-month dip in its share price.) The discussion can probably be distilled into two points of view: Veverka wonders whether Yahoo! is overly reliant on startups spending venture capital and questions both the life span of Yahoo!'s ad contracts and the success companies are having with banner advertising. Koogle, meanwhile, says his company is signing on more Fortune 50 companies and suggests his network's ad contracts are growing both longer and more lucrative.
And some of the figures in the press today would seem to help Koogle's case. Down the proverbial halls at Dow Jones & Co. (NYSE: DJ), The Wall Street Journal was reporting a bullish forecast on ad spending through the second and third quarters of 2000, with online ad sales running 75% above last year's numbers for the year (according to projections from ad agency McCann-Erickson Worldwide). Media executives interviewed for the article were upbeat about economic indicators and the client pipeline; as one of the Internet's two real powerhouses in terms of reach, it would seem Yahoo! -- along with America Online (NYSE: AOL) -- will continue to profit handsomely.
But Veverka also tackles a question that's larger than Yahoo!: How effective is banner advertising, really? It's a much-debated matter, some companies valuing their ads' performance on "clickthroughs" and others using Web banners primarily for branding or exposure.
That's the value of the Barron's article: It asks a number of questions about everything from Yahoo!'s own plans to continue adding content and services that may add utility but pull back profits to broader questions about operating a business on the Internet, the need to acquire to spur growth and new-economy investor interest, and the anecdotal nitty-gritty of one company's relationship with the portal company.
(As to acquisitions: Today's newswires are citing an unsourced British newspaper report saying Yahoo! is considering a $4.32 billion bid for U.K. consumer magazine publisher Emap plc, the world's largest in that category. Such a deal, on its face, seems attractive since it answers the question of whether Yahoo! would consider a large media purchase but still essentially stays in the company's wheelhouse -- publishing. Still, getting into the content generation business instead of the aggregation business would be a huge departure from form and stated intentions.)
Those are all good questions, and Veverka pits them against the company's current price-to-earnings ratio to, in a rather convoluted way, ask the most crucial of valuation questions: How much growth can Yahoo! generate and how much should an investor pay for it? Barron's doesn't answer the question this week, I'm afraid, though the implication is clearly that Veverka isn't completely enamored of the company or its valuation.
And that's the downside to the article, in my opinion. Veverka leaves several questions essentially unanswered, hinting at a negative view but never really backing it up with anything but hypotheticals. Anyone can raise an issue. That's what the boilerplate language in company filings does. Trying to answer it, well, that's analysis. Then again, Fools more concerned with their own conclusions shouldn't have a problem with that. And investors should cherish opportunities to consider bearish or critical evaluations of their holdings as opportunities to either reconsider or reaffirm their convictions.
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