Yahoo May Be More Tied to Housing Than Investors Understand

| About: Yahoo! Inc. (YHOO)

Jordan Rohan, the Internet analyst at RBC Capital, explores the ties between Yahoo (NASDAQ:YHOO) and the the softening of the mortgage market which has accompanied higher interest rates and a weak residential real-estate sector: “As housing softens, fewer consumers are in-market for a mortgage, reducing valuable mortgage clicks and page-views,” Rohan writes.

He notes that there have been cutbacks in ad spending at mortgage lead aggregators like LowerMyBills and Lending Tree. “We believe the negative impact to the advertising space could total $50-$75 million, and may pressure [year-over-year] comparisons through [the first half of 2007].

Rohan says he thinks Yahoo’s recent warning on soft auto and financial advertising trends “may point to a higher level of exposure to housing industry trends than investors understood…buyers of mortgage-related ads and leads cut ad spend over the last 6-9 months. The full impact has been felt recently on the online media properties that supply ads and leads, which could take months to diagnose.” Rohan says Yahoo is more exposed to the trend than Google (NASDAQ:GOOG), with “the largst percentage of financial-related page views and some exposure to a weak keyword pricing for mortgage-related terms on Yahoo search.”

Rohan says other companies with exposure to the issue include IAC-Interactive, (IACI), through its LendingTree site, and BankRate (NYSE:RATE), through its FastFind service.

Somewhere out there, Rohan says, could be a siliver lining. “There could be another resurgence in activity if a few key catalysts play out. If bonds continue to rally, the mortgage space could have another wave of refinance activity. Web-based refinance leads are worth much more than purchase leads because they convert at a higher rate.”