Wednesday, August 09, 2006

Calls of Note Part 2

- UBS notes they are currently attending the Search Engine Strategy conference (8/7-8/10). Yahoo's (NASDAQ:YHOO) presentation on Tuesday focused on new detail and a first demo of Panama, its new paid search platform. YHOO reiterated that the front-end application and back-end code will be rolled out in 4Q, and that "it will decide in the next few weeks" if the new search ranking methodology will be introduced in 4Q06 or 1Q07.

Firm believes there was widespread confusion about the timing of the new ranking system, and that many investors were concerned it could slip further into '07 -or even not get done at all. Given the demo they saw, conversations with YHOO, advertisers, ad agencies, and the fact that YHOO may still release it in 4Q06, they believe there is little chance for a delay beyond 1Q07. UBS does not believe YHOO intended to communicate anything different in regards to timing.

However, confusion around the issue has clearly impacted the stock. Firm believes Tuesday's presentation was a positive step forward for YHOO and should help improve investor sentiment. In speaking with Yahoo, they believe that much of the speculation and conjecture regarding the originally announced delay were incorrect, and added that additional testing time with advertisers (not-internal problems) was the main reason behind the 2Q delay announcement.

Firm thinks it is unlikely that the new search ranking platform will be introduced in 4Q06, and is much more likely to happen in early 1Q07. Regardless, monetization improvements will ramp gradually after introduction, so it is not likely to meaningfully impact revenue in the short-term.
Maintains Buy and $39 tgt.

Notablecalls: When YHOO reported its Q2 results on July 18 the stock fell around 1.5 pts on weaker than expected earnings/guidance. It fell another 5 pts during and after the conference call as management pushed back the launch of Panama. So you now see why the stock jumped over 1 pt yesterday as analysts called their best clients straight from the conference room. While I think Panama will not likely be launched in Q4 UBS makes a good point about investor sentiment. I suspect YHOO can move higher from here.

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