Finally, the moment(s) of truth... Were Yahoo!'s (YHOO) troubles a false alarm? Were Yahoo!'s troubles a real alarm but just Yahoo!-specific?
Were Yahoo!'s troubles a canary in the coalmine that will soon spell temporary doom for Google (NASDAQ:GOOG), AOL (NYSE:TWX), and the rest of the industry (MSN was doomed years ago, perhaps permanently)?
Was the recent decision by YouTube and Sequoia to take all stock on the buyout deal an insider indication that Google's revenue is still steaming along? Can Google finally bust out of its trading range and set a new high? Or will Google's slowing growth and soaring capital expenditures finally cause investors to decide that a free-cash-flow multiple over 50x is exorbitant--and reduce it to, say, 30x?
Ladies and gentlemen, time to place your bets!
Yahoo: A few weeks ago, Yahoo announced that revenue in the financial services and automotive sectors had weakened and that Q3 revenue was now expected to at the low end of the $1.115 to $1.225 billion guidance range. Was this a head fake? Will Yahoo now announce that the quarter finished strong--blowing out the new consensus, maintaining future guidance, and blowing up all who are short the stock? Or is the $1.115 expectation the right one and will Yahoo reduce future guidance. According to Safa Rashtchy, the Street consensus is $1.15B, although my sense is that the real expectation is less than that.
My prediction: $1.14B and reduced future guidance, already walloped stock stays put. (I own the thing, so I sure hope so).
Google: When Yahoo announced its woes, Google stumbled, too--sensibly, I thought (I'm in the canary in the coalmine camp). But then Cramer came out banging the drum, the YouTube afterburners fired, and, suddenly, two insiders in the know--Sequoia and YouTube management--announced that they were taking all stock on the deal (something they presumably wouldn't do had they been tipped off that Q3 or Q4 was looking weak). So if the industry fundamentals are, in fact, crumbling, it seems that they may not be affecting Google--yet. Per Safa, the consensus net revenue estimate is $1.81 billion, up 9% sequentially. (Safa's own "estimate" is $1.64, but he's still a bull, so one suspects that his real estimate is higher than that).
My prediction: Very modest upside--say, $1.83 billion--plus some vague but cautious remarks that will scare the bejesus out of people. No new high and stock soon back to $400. Lower if there's any sign of fundamental deterioration.