Does The Street’s Yahoomania Make Sense?

Yahoo’s quarterly announcements, coming as they do at the beginning of the so-called earnings season, have been much-scrutinized for some time. But the anticipation before today’s announcement felt different by an order of magnitude: Yahoo’s name practically has the words “Internet bellwether” surgically attached to it lately, and everyone seems to think that we will find clues to the viability of online advertising in particular and the online future in general right there in the numbers.

If you’re interested, the word bellwether refers literally to a “wether, or male sheep, which leads the flock, with a bell on his neck,” according to my Webster’s unabridged dictionary. “Hence,” Webster continues, the word is used for “any leader, especially of a foolish, sheeplike crowd.” Well, that certainly sounds about right.

Anyway, Nasdaq–excuse me, “the tech-heavy Nasdaq”–slid another 100-some points today prior to Yahoo’s announcement, and YHOO itself, which was among the 15 most actively traded Nasdaq stocks of the day, was off about 4 percent. The spin from analysts and onlookers prior to the Yahoo announcement was that everyone expected a “solid” quarter from the company.

And in fact they were–13 cents a share, or a penny a share more than the official consensus of analysts who follow the stock. Revenue came in at $295 million, which was on the high end of what had been expected, and page views looked “solid,” too.

But expecting “a solid quarter” is one of those meaningless statements that’s vaguely positive yet allows everyone an escape hatch if things don’t work out. After all, if the bellwether has a solid quarter, then all the other weary sheep in the flock of companies whose business models rely on advertising revenue ought to follow it up, right?

Actually, the more advanced Yahoo spin suggests that a “solid” quarter would yield anything but solid results in the market. Yahoo needed to hit at least 13 cents a share (the so-called “whisper number,” meaning the number that the Street really expects). But even that represents a slowdown in the rate of its “sequential growth”–meaning the percentage by which its earnings have increased quarter over quarter–and thus even this victory could actually turn into a disappointment. YHOO bounced around in immediate after-hours trading, and the market will have tonight and all day tomorrow to ferret out any other bit of bad news. (Just as it was once commonplace to learn every day about a new “metric” that explained why a stock was going up, now we’re always learning about some new “key data” driving a stock down.)

But even if Yahoo’s numbers were a “blowout,” would that really have proven to be a catalyst to lift other Net stocks? I suspect that this is wishful thinking. The truth is that Yahoo is not quite the bellwether it’s made out to be: The company is already in profit, and if online advertising is going to succeed at all (which seems pretty likely to me), then it’s going to succeed on Yahoo. If Yahoo’s numbers looked shaky, one could have concluded that others would have trouble, too. But the reverse isn’t necessarily true: The fact that Yahoo’s doing okay really just shows that Yahoo’s doing okay. Even so, I suspect we’ll hear Yahoo called a bellwether for many quarters to come. The flock, after all, is always looking for direction from somewhere.