Industry Braces for Yahoo!, DoubleClick

It’s like Groundhog Day.

Two market giants are set to release earnings and future guidance this week, and what they show could forecast the next few months. Specifically, analysts and investors are watching to see whether the tech sector — and specifically, the online ad industry — will suffer several more quarters of poor valuations and performance, or whether the Internet sector will rebound.

One longtime fan of both the stocks, Merrill Lynch’s Henry Blodget, evidently sees a shadow. Earlier in the week, he said that while he anticipates both will meet earnings estimates (which take into account previously lowered guidance for DoubleClick), he anticipates lowered future estimates and CPM rates for the two.

Last quarter, Yahoo, which reports Wednesday after the market closes, narrowly exceeded analyst consensus estimates by a penny, posting $.13 in per-share earnings. DoubleClick, which will release its earnings Thursday evening, posted earnings of $0.03 in Q3, but earlier this quarter gave guidance that it would likely see a $0.03 per-share loss.

For their part, Robertson Stephens analysts said they expect DCLK to post total earnings for 2001 of $0.11, and they expect Yahoo’s to top $0.57 — both lower than earlier estimates.

But Merrill’s Blodget wrote that he expects YHOO and DCLK to “bottom” in first-quarter, while performing well for the rest of the year. Robertson Stephens analysts are a bit more hesitant, indicating that they believe online ad spending won’t rebound until mid- to late 2001.

Yet predictions for the two stocks are difficult, as any sell-side analyst will say. Several factors are working to muddy future guidance: Yahoo currently has a 40 percent pure-play dot-com ad clientele, DoubleClick has about 50 percent, and, according to Blodget, “assumptions about pure-play dot-com ad spending and traditional company spending … are hard numbers to be confident about.”

Another trend worth watching: Yahoo also is giving signs that it’s trying to wean itself off of ad revenue, at least partially. Far and away its largest source of income, revenue from advertising sales apparently will be augmented by requiring subscriptions to portions of its service, such as its FinanceVision and other broadband-geared areas, according to several comments by Yahoo top execs within the past several months.

Yahoo is also making efforts to beef up its corporate portal business — in which it provides intranets for other businesses — having this week announced the signing of eleven new clients. And the company recently began charging listing fees on its Yahoo Auctions site.

While Yahoo is distancing itself from ad revenue, DoubleClick has been moving in the opposite direction — busily propping up the industry’s bulwarks against the critics of online advertising.

A large portion of its work to convince the market about online advertising’s viability has been through pointing to its own apparent survivability. In this, DoubleClick has been largely successful: earlier this week, Goldman Sachs reiterated a Market Outperform rating for DoubleClick, citing its stronger position relative to competitors like Engage.

Positioning the troubles of Engage (which recently said it would lay off half of its staff) as a healthy, almost Darwinian market shakeout, bodes well for DoubleClick’s efforts — if it can keep its own news rosy.

And so, in the hours prior to Yahoo’s and DoubleClick’s announcements, trading is frenzied. Shares of both stocks are down in early going: DCLK is off 4.73 percent, at $11.02, while YHOO is down 5.19 percent, to $28.56.

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