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Summary:

Not such a good day for Yahoo and other search engine stocks. Yahoo’s modest financial performance in the fourth quarter of 2005 prompted a quick sell-off, and already the second largest search engine is down 10% for the day. Suddenly there is growing anxiety about Google […]

Not such a good day for Yahoo and other search engine stocks. Yahoo’s modest financial performance in the fourth quarter of 2005 prompted a quick sell-off, and already the second largest search engine is down 10% for the day. Suddenly there is growing anxiety about Google and the whole “internet advertising thing.” Some analysts have already started the bear talk on Google. There is belief that Yahoo’s weaker than expected earnings are prompting a sentiment shift on the search stocks – from positive to less than positive. Canary in the mine, as per Joseph Weisenthal stock options and their cost,

Check how much Yahoo! will be spending on stock options in 2006, according to the guidance they gave yesterday it’ll be somewhere in the ballpark of $420-$450 million. That compares to a mere $52.4 million in 2005, an enormous increase.

We got to wait for Google’s numbers; and I bet they will be just fine. Unlike Yahoo, Google is highly focused on advertising sales, and despite its occasional new product the company knows which side of the bread is buttered. I think their decision to buy dMarc yesterday was proof that Google is only about advertising.

The big question is if Yahoo (and Google) stocks do continue to take a pounding, then what it does to the Web 2.0 start-ups. The falling stocks bring shopping sprees to quick halt. Given that GYM(IAA) is the only exit, one wonders about the future of these tiny tots.

Jason Fried offers some advice: “Believe it or not, it’s far better (and easier) to build a small, profitable, healthy company that sells a product or service to a thousand small customers than it is to sell to that one magical big buy-out customer.”

PS: Where is Paul Kedrosky when you need him?

  1. Umm, what will happen to these tiny tots? Gee, maybe they’ll have to start working on something as revolutionary as a business plan? Will wonders never cease.

  2. hey larry,

    i though with that headline, i should go for subtle sarcasm in the post. clearly did not work ;-)

  3. Larry is exactly right. The little guys will have to focus on actually creating revenue and, more importantly, profit (gasp!). It’s not going to be enough to create a new wizbang super duper RSS aggregator and slap some google ads on there and hoe and pray that one of the big boys picks you up.

    Weblogs Inc is a decent example. Their business plan never involved being bought out. They were profitable on their own. It may be tough to replicate their network of bigger name blogs, but surely someone could setup a “long-tail” blog network.

  4. I blame the pasta I had for lunch, it clearly was inhibiting the ability of my brain to pick up on the underlying humor.

    Now, off to build my free social bookmarking website, re.diculo.us!

  5. The little guys will have to focus on actually creating revenue and, more importantly, profit (gasp!).

    It applies to big guys as well. Wall Street’s reaction to Yahoo!’s numbers yesterday is ample indication of that.

  6. erhh… that should be “hope and pray” not “hoe and pray”

  7. Weblogs Inc is a decent example

    To had just 2 Million or so in revnues and had 103 bloggers on the payroll and nine fulltime staffers. I bet their bottomline (profits) would be much much less than the 2 million and i guess my neigbourhood dry cleaner would have a much better cash flow than that :)

  8. People are insane greedy, more so the analysts..look at their results below and tell me that they are not performing!!! They expecting a 50% increase in revenue every other quarter…they are nuts!!

    <———————————–>
    The company ended the year with 12.6 million subscribers, an 11 percent increase from 11.4 million in September. The subscribers paid $186 million in fees during the fourth quarter, a 38 percent increase from the same time in 2004.

    Spurred by its steady growth, Yahoo added another 674 workers during the fourth quarter, expanding its payroll to 9,816 employees at the end of 2005.

    Excluding its ad commissions, Yahoo forecast its 2006 revenue will range from $4.6 billion to $4.85 billion — a 24 percent to 31 percent increase from 2005. The average 2006 revenue estimate among analysts is $4.77 billion, according to Thomson Financial.

    For all of 2005, Yahoo earned $1.9 billion, or $1.28 per share, on total revenue of $5.26 billion. Net income for 2004 totaled $839.6 million, or 58 cents per share, on total revenue of $3.57 billion.

  9. om,
    i don’t falling stock prices will have a big affect on GYM’s M&A activity – at least not their interest in start-ups. if GYM is interested in expanding their service portfolios, there will always be an enthusiastic audience for their shares.

    mark

  10. Dinesh ,people would not have high expectations if yahoo stock’s PE is down to earth.

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