The exploration for new revenue sources comes as Yahoo! faces an increasingly bleak financial outlook. Already, Wall Street analysts are sounding alarms, warning that Yahoo!'s business for this year and next remains questionable. With the 11 September terrorist attacks that brought down the World Trade Center and severely damaged the Pentagon, advertising pullbacks as a whole have given the media industry a significant blow. Last week, Jordan Rohan, an equity analyst at Wit SoundView, reduced Yahoo!'s revenue estimates for this year and for 2002. Rohan said Yahoo! would generate $608m in revenue for 2001, down from the company's prediction of between $700m and $775m for the year. Rohan also said earnings would break even in 2002, instead of his previous estimate for earnings of 13 cents per share. Other analysts said they plan to wait for Yahoo!'s upcoming earnings report on 10 October before making any adjustments to their expectations. "I don't know how you can really tell what's going to happen for the fourth quarter," said Kathleen Heaney, an analyst at Brean Murray. "I really don't know how to figure out how bad it can be right now." While advertising has weakened, it remains the pillar of Yahoo!'s business. In its most recent earnings call, the company said that it expects only about a fifth of its revenue to come from other sources. A significant percentage of this revenue comes from sales of its Corporate Yahoo! product, which services companies looking to manage their internal employee Web network. Its licensees include McDonalds, Bayer and Seagate Technology, to name a few. Other sources of non-advertising dollars include its broadcast services division, which offers a way for companies to Webcast internal meetings. The remaining percentage comes from Yahoo!'s premium services, which the company has introduced more aggressively in the past year. But analysts say they are still waiting for evidence that these services are helping the bottom line significantly. Paid services being offered range in price and generally do not have a unifying price plan or a central hub to shop for them, analysts said. Typical examples include tweaks to Yahoo!'s personals and Geocities Web-hosting services, changes that together have little promise of delivering more than a fraction of the company's overall revenue. Some analysts are more bullish about a planned online music service. Yahoo! has an agreement to sell songs through Pressplay, a subscription service backed by Vivendi Universal and Sony that is scheduled to launch by the end of the year. The missing link?
While there is no assurance that Yahoo! will enter the high-speed Internet access business or create a for-pay instant-messaging service, research aimed at gauging the potential of both could signal a considerable change in Yahoo!'s strategy. Yahoo! has long downplayed any desire to own an Internet service provider and has never made significant inroads in co-marketing partnerships with other ISPs. The company has always maintained its stance of keeping instant messaging free and has never publicly considered offering a corporate version of the service. Yahoo! executives and outside observers have long debated whether the company needs to run its own Internet access business. The company has watched as competitor Excite.com sold its business to high-speed cable ISP @Home; America Online acquired Time Warner, which owns the second-largest cable network; and Lycos sold itself to Spanish ISP Terra Networks. The results have been a mixed bag. Excite@Home has filed for bankruptcy and Terra Lycos continues to struggle as AOL Time Warner begins to launch its AOL cable ISP service. But some analysts think the environment is ripe for Yahoo! to get into the access business. At a time when advertising continues to slump, Yahoo! needs a boost in recurring revenue. As AOL Time Warner can attest, selling subscriptions provides a safety net for media companies in the event of a down advertising market. Could Net access provider EarthLink be a partner? EarthLink is expected this year to generate $1bn to $1.2bn in revenue for 2001, according to Frank Gristina, an analyst at SunTrust Robinson Humphrey who covers the company. And despite the collapse of many Internet stocks, EarthLink on Monday traded at $16.15 in the midafternoon, which gives it a $2.1bn market cap. EarthLink could also provide Yahoo! a foothold into high-speed cable services. EarthLink has an agreement to provide broadband cable access to Time Warner Cable subscribers. EarthLink has already launched in Columbus, Ohio, and Syracuse, New York. However, buying EarthLink may be more difficult than ever. Yahoo!'s once-mighty stock has plummeted with the rest of the online media sector and now trades around $9 a share, down from its 52-week high of $92. "I think EarthLink would be an incredible fit, but I don't think Yahoo! can afford them right now," Gristina said. See the Internet News Section for full coverage. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the Telecoms forum. Let the editors know what you think in the Mailroom. And read other letters.




