S.G. Cowen Securities Corp's Scott Reamer, who last year told investors to bet on Yahoo Inc shares falling, has changed his tune.
The analyst spent three days last week meeting with advertising executives and Monday raised his rating on the most popular Internet search service to "neutral" from "sell." The stock may rise more than 13 percent this week, when Yahoo hosts its own meeting with media buyers, he wrote in a report.
"In our talks with agencies, this was the first time we ever had positive feedback on Yahoo," Reamer wrote. The company is "trying to offer better solutions to advertisers, rather than the standard `this is what we have' pitch."
Yahoo, which got about 90 percent of its revenue from advertising last year, is working to "accommodate" requests that go beyond printed messages, Reamer said. In March, the company broadcast teen pop star Britney Spears' Pepsi commercial before its network premiere during the Academy Awards. PepsiCo bought all of Yahoo's home page ad space in the two days before the Oscar telecast.
Such ideas may help Yahoo attract clients such as packaged-goods companies as it makes up for a drop in advertising from dotcom companies, which have accounted for as much as 60 percent of Yahoo's revenue.
Reamer said he now expects Yahoo to meet its estimate of US$167 million in revenue and earnings of US$0.01 a share for the second quarter. While it's likely to rise this week, the stock, which today rose US$0.32 to US$19.78, is still pricey at 460 times expected 2001 earnings, he said.
Reamer found in the meetings with advertisers that spending on interactive ads may improve and Fortune 500 companies are once again "taking meetings with Internet media concerns," he wrote.
Cost-per-thousand rates, or the amount an advertiser pays for every 1,000 times an ad is viewed, either in print or online, have stabilized after falling, he said.
Alan Loewenstein, a manager of the US$1.4 billion John Hancock Technology Fund, who sold his Yahoo shares in March 2000, said such checks are important as he tries to find the right time to buy Yahoo shares again.
"The Internet will be a viable method for contacting consumers. As we go forward, more advertising dollars will go toward the Internet and away from television," he said.
Yahoo met Monday with more than 125 advertisers in Princeton, New Jersey. Co-founder Jerry Yang is expected to speak. The event includes a wine tasting.
Yahoo shares reached a high of US$250.06 on Jan. 4, 2000 and have since tumbled 93 percent. That lopped off US$142 billion of stock market value, the equivalent of a company the size of Merrill Lynch & Co, General Motors Corp and DuPont Co combined.
Reamer, who has a bachelor's degree in chemical engineering, has followed Internet and media companies since 1994 and Yahoo since its initial stock sale in 1996.
Yahoo, which has traded between US$17 to US$22 in the past month, could rise above US$22 this week given the advertising outlook, Reamer said, so he also rates the shares a "trading buy." His longer-term rating of "neutral" will remain until ad budgets rise faster than expectations and there is proof Yahoo is capturing the increase, he said.
In December, Reamer also had a "neutral" rating on Yahoo when he recommended investors "short" the stock. The shares have since fallen 31 percent.
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