Recession Fears: General Tech Stock Woes, Pathetic Yahoo!

January 30th, 2008

Yahoo!2008 has been messy for the American economy, what with the housing implosion handcuffing banks, recession fears finally becoming mainstream (the cover of Newsweek), and all that market turmoil last week. Even some VC folks are becoming cautious.

Anyhow, Apple stock was slammed - and unfairly, in my opinion (I do own some shares). They had their most profitable quarter ever but Wall Street jumped on lowered expectations for next quarter. The stock took enough of a hit that Steve Jobs felt moved to send out a letter reassuring investors - it’s macroeconomic stuff, not the company. Go figure.

Google and Intel are also well off their highs, and the NASDAQ as a whole is down 10% for the year - leading James Cramer to advise dumping tech. He complains of a lack of exciting products: the iPod has run its course, cell phones are too competitive, music and movie delivery is not a must have - nothing screaming “buy me” that will be a driver of huge growth this year. Again, I think rather unfair considering a few weeks ago Cramer was saying the opposite.

But then we have Yahoo! - who announced earnings yesterday and saw their stock drop as a result. Still profitable, but next to Google look increasingly challenged. The Yang turnaround is still in the works and I’m still waiting for something more exciting than (IMHO) dopey, 2006 ideas like “lifestreaming.” Lastly, they confirmed the rumors of a “reallocation” [layoffs] of about a thousand employees.

Most worrisome: Yahoo! stock has the least room to fall. Google and Apple are both over a hundred a share whereas Yahoo! going into earnings - was already at a pathetic $20. I say “pathetic” because before the 2000 slowdown, Yahoo! was a tech leader at $100 a share. Now they’re entering a possible recession in a much weaker position. I feel this is relevant because if the stock falls further, a low valuation could make them an acquisition target for Microsoft.

So I agree with Mike Arrington’s rumor that Yahoo! may soon face a difficult decision - kill their inhouse Panama advertising platform and partner with Google, or sell to Microsoft or even a hedge fund. I hope it doesn’t come to that. But any of these situations are totally plausible - especially if there’s a recession.

Disclosure: I own a tiny amount of Apple stock.

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Viewing 6 Comments

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    Now that Google's missed estimates you can probably say the sky is falling :-P

    Seriously though, when was the last time Google missed earnings?
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    ^ but would that we could all grow as rapidly as google (in spite of analyst's insatiable expectations)
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    Hmmm well even I didn't expect that. I don't think they have ever missed earnings. 17% ain't shabby in my mind but definitely not the high numbers we've seen in the past.
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    Several things make this uncharted territories....

    (1) The FED cutting 125 basis points over a couple of sessions is simply historic - yet it really didn't matter much.

    (2) The last time we didn't have a sitting president or vice-president running for office was 1960.

    (3) Every tech company reporting is scaling down guidance or missing EPS expectations.

    (4) In AAPL's case, they grew like very few stocks have since 2004. And by very few, I'm saying that you can count the number of market-cap peers that have done this one one hand. Can you *really* say with confidence that the stock wasn't overpriced in the second half of 2007? If so, then please explain how iPhone sales (decent, on target but only so) and iPod sales (unit sales flat to poor, profits on target) stack up against things.

    (5) Last week the DOW hit an intraday level that hasn't been seen since Bill Clinton was in office. NASDAQ? Well, sure, they've been there before too (post bubble-bust) but they are a FAR cry from where they were in 2001.

    Bottom line? I sold everything last Wednesday (consciously but incorrectly decided to wait for one more earnings call) and am now sitting in 100% cash. My non-AAPL holdings? Combined they netted me 4.28% over the last three years and I took one loss (with of all things, GE). My AAPL holdings? Combined aross two accounts and six purchases - 152.8% for the same three years. And that's after leaving nearly another 150% on the table since December 28.

    I'll get back in someday. AAPL that is. But right now I'm looking at having sold at 138+ and 139+ last Wednesday... and it closed up today at 135... and AH has it down a dollar. SO when do I think I'll get back in? When I'm POSITIVE it's bottomed out.

    What's going to bring it up? New MacBook Pros? If they had a major change they'd have inrotoduced them at MWSF. The Beatles on iTunes? That last last year's silly rumor for February. iPhone SDK? Well, that'll be sweet - but until developers actually make native software it won't make one bit of difference.

    What's going to keep it down? Fiscal Q2 is always their slowest quarter. Recession concerns. Credit debt. Unemployment. Inflation. Oil prices. Weak dollar.

    It gets down to this - they've lowered expectations for the April call, and they have extremely good growth in Mac sales. Too bad they had nothing much to introduce at MWSF. The Air is a niche product that is 1-2 years ahead of it's time at best. It's an underpowered overpriced limited-by-design product at worst.

    All told this could easily mean the stock price won't see 200 again until October - and *that* is if the perfect storm hits, and overall market conditions turn bullish. In all likelihood we're talking 2009 - and not necessarily the MWSF '09 runup either.
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    Well...here comes the MSFT unsolicited bid! This is sure to make for some fun news entertainment. Time for a webomatica post on the topic :-)
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    Wow - another event just out of the blue. I'll definitely post on this later but right now I need to digest the implications. I guess MSFT is taking advantage of their good earnings and everyone else's weakness.
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