Merrill Lynch cut Yahoo! (YHOO ) to near term reduce/sell from neutral; and to long term neutral from strong buy.
Analyst Justin Baldauf says at first glance, Yahoo!'s second quarter results appear solid: better than expected results and raised estimates. Hence, he raised his $0.12 2002 earnings per share estimate to $0.13, and upped the $0.17 2003 estimate to $0.18.
However, revenue growth is driven entirely by new initiatives -- not Yahoo!'s core online advertising business, which fell 19%. Baldauf says the increased guidance seems driven entirely by an extension of the Overture merger deal. Once new initiatives are "anniversaried," Baldauf says he thinks they will drive much slower rates of year-over-year growth.
He doesn't think the compnay's fundamentals support valuation; he says a more reasonable valuation is $9-$10.