NEWS AND COMMENTARY October 10, 2000 Investors Await Yahoo!'s Earnings, With Concern About Dot-Com Ads By Mylene Mangalindan, The Wall Street Journal Yahoo Earnings May Save Nasdaq's Neck...For Now! ... Weiss comments NEW YORK - For investors seeking the next gauge of the tech industry's health, there's one coming Tuesday: Yahoo! Inc. releases its third-quarter earnings after markets close in one of the most highly anticipated financial reports in the Internet sector. Will Yahoo's earnings show that it has insulated itself enough from the dot-com downturn to avoid a falloff in advertising revenue? Or will it be the latest company to hit Wall Street with an unpleasant earnings surprise and thus perhaps lose some of its luster as an Internet blue chip? A disappointment might put Yahoo in the company of big names like Intel Corp., Apple Computer Inc. and Dell Computer Corp., whose earnings announcements have helped hammer the Nasdaq market. "It'll create additional selling pressure for technology stocks" if Yahoo's earnings disappoint investors, says Paul Foster, a strategist at 1010wallstreet.com, a Chicago options-strategy firm. "People are nervous," he says, pointing to volatile options trading. Trading of October put options exercisable at $85 more than doubled to 5,000 contracts, up from an average of 2,000, according to 1010wallstreet.com. Put options are contracts that give the owner the right to sell shares at a specified price, on the hopes that a stock will drop. Based on its earnings history, Yahoo traditionally beats analysts' estimates by at least a penny a share and reports revenue that reaches the high end of forecasts, says Joe Cooper, an analyst at First Call/Thomson Financial. Analysts expect the company to report 12 cents a share, excluding amortization, goodwill, employer payroll taxes and other items, up from seven cents a year ago, according to First Call/Thomson Financial. They also expect the company to generate $281 million in revenue, the consensus estimate, up from $155 million in the same period last year, said First Call/Thomson Financial. Revenue estimates range from $279 million to $285 million. If Yahoo reports positive earnings this afternoon, the Nasdaq Composite will likely receive a short-term boost. The hammered index could certainly use the help. And investors are crossing their fingers because the nice rally that began in the Nasdaq in July was triggered by Yahoo, which beat analysts' estimates by one cent. However, this time around, Yahoo will not be able to lift the entire Internet sector for long. Why? Because revenues and earnings at dot coms are declining precipitously. The bubble has burst, and there's no looking back. So, even if Yahoo's earnings come in above estimates, the Nasdaq's stay of execution will be only temporary. If Yahoo's earnings miss estimates, it will reinforce the negative investor sentiment surrounding the Nasdaq and the index will plunge even further. Either way, the tech-stock nosedive has not yet reached bottom.

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