Panama May Dent Yahoo's Near-Term Revenue - And Boost Google's

Yahoo (YHOO) shareholders, employees, and advertisers are, for obvious reasons, praying that Panama works. For shareholders, occasional positive comments from customers are nice, but salvation will only come if and when Panama suddenly turbocharges revenue growth. From the shareholders' perspective, if the system fails to do this, it will have failed.

Given that the company began to transition customers to Panama in mid-Q4, any revenue acceleration will likely come in Q1 at the earliest. A nearer-term question is whether the Panama transition will have a negative impact on Q4 (or even Q1) revenue -- and whether Google will scoop up the difference.

In today's WSJ ($), Kevin Delaney suggests that some small Yahoo customers have had to cut back spending significantly during the transition. The comments are anecdotal, but the idea that the switchover might cause a temporary hit to revenue makes sense. In one case, moreover, the spending that Yahoo lost went to Google instead:

Imagers, a family-owned Atlanta digital-printing business with a staff of 35 last year spent about $10,000 a month on search-related advertising through Yahoo. After its account was converted to Yahoo's new system around the start of this month, Imagers says Yahoo declined to let the company continue running some ads linked to specific keywords....Imagers says Yahoo customer service wasn't able to rectify the problem immediately, so it slashed spending on Yahoo to about a $700 monthly rate and increased its budget for ads on rival Google Inc.

According to Kevin, it took Yahoo three weeks to fix the problem, and Imagers has now increased its spending back to only 70% of the original level. If Kevin's anecdotes are reflective of Yahoo's broader customer base, shareholders squinting to see light at the end of the tunnel may have to wait for another quarter or two.

Disclosure: Author is long YHOO

Comments

[Ashish:]

What is your take on earnings?

The whisper estimate is $0.14 (source: www.istockanalyst.com). It sounds like retail investor is expecting higher than consensus estimates.

2007 Jan 23 12:23 PM