Blodget Gives Yahoo! Farewell Thumbs-Up

Yahoo will be entering the New Year on the heels of positive comments by outgoing Merrill Lynch Internet analyst Henry Blodget, who predicted growth in the Web portal’s fourth-quarter ad revenue and market share.

Blodget, the onetime, high-flying dot-com cheerleader, is slated to leave Merrill this month. But that didn’t stop him from writing in a research note on Friday that said improvements in the ad market would contribute to Yahoo hitting the top end of its revenue guidance.

“We expect to see modest sequential growth in online advertising in the seasonally strong fourth quarter, followed by a sequential decrease in the seasonally weak first quarter,” he wrote. “We then expect to see modest sequential growth for the balance of 2002.

Accordingly, the analyst raised his fourth-quarter revenue estimates from $169 million to $175 million, based an anticipated 5 percent increase in ad revenue from the previous quarter. Yahoo management had earlier predicted $160 million to $180 million in revenue for the quarter.

If Blodget is correct and expenses remain in line, Yahoo would still post a $0.01 per-share profit in fourth quarter — though the analyst added that there’s a distinct possibility that the company could see earnings of $0.02 per share, In third quarter, Yahoo posted a $0.01 per-share profit on $166.1 million in revenue.

“We expect the stock to remain volatile, but trend modestly higher over the next year as a result of recovery in advertising spending, growth of other revenue streams, and low expectations,” Blodget wrote.

That strength, he added, could position Yahoo for competitive growth — and allow it to claim still a larger portion of the online media market.

“With a strong global brand and a restructured management team and sales force, we believe Yahoo will be able to gain share as the market grows,” he said.

Blodget’s expectations for an increase in the ad market, which he indicated were based on anecdotal evidence, remain bullish compared to the vast majority of industry-watchers. Still, the line of reasoning isn’t out of character for the analyst, who first rose to fame in 1998 on his then-unthinkable recommendation that shares of Amazon.com would hit $400.

But he did make clear that the industry wouldn’t return to the heady days when dot-com advertising reigned, and would continue to see only modest growth.

Blodget also noted that Yahoo’s revenue expansion would come in part from its continuing efforts to diversify revenue, away from regular online media.

For one thing, he spoke favorably about Yahoo’s recent proposed acquisition of recruitment site HotJobs.com. Finalized last week when rival suitor TMP Worldwide declined to match Yahoo’s bid, the Web portal’s planned purchase aimed to insulate it against continued weakness in the online ad market with more recession-proof recruitment advertising and software revenues.

Indeed, the acquisition could add between $75 million to $100 million to Yahoo’s full-year 2002 revenues, he said.

Blodget also praised the Web portal’s recent deal with Overture for paid search listings — which could add about $3 million to $5 million to Yahoo’s fourth-quarter revenue.

“Although questions remain about what Yahoo’s product offerings and fee structures will be in each of these areas, the move in this direction shows that Yahoo is serious about paid services,” Blodget wrote.

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