Yahoo! woes cast doubt on Internet sector

Brian Bergstein

Thursday, March 8, 2001 | 11:22 a.m.

SAN JOSE, Calif. -- Shares of Yahoo! Inc. plunged nearly 20 percent this morning after the former dot-com darling warned that it miss Wall Street's first-quarter expectations and Chief Executive Tim Koogle plans to step down from that position.

Koogle, who will stay on as chairman, said he felt Yahoo needed an infusion of new talent.

"I'm looking over the horizon, and saying, when the economy starts to firm and Yahoo has weathered through this, what do we need to have in place so that we've got enough bench strength to scale continuously as we grow for the next five to 10 years?" Koogle, 49, said in a conference call with financial analysts. "I think it's a great time to be proactive about that, and bring in and extend our team."

The company also announced Wednesday that its first-quarter operating earnings will come in at "approximately break-even," well short of analysts' projections. Full-year results also could miss targets.

Shares of Yahoo, which were halted for most of the day Wednesday on the Nasdaq Stock Market for the release of pending news, fell $4.13 to $16.88 in morning trading Thursday.

"The best dot-com can't make it, and that's troubling for the entire Internet economy," said Jordan Rohan, media analyst for Wit Soundview. "If Yahoo is only marginally profitable, then players like Terra Lycos don't stand a chance. And smaller players aren't even in the game."

Koogle -- known as "TK" around the company -- joined Yahoo in 1995 after serving as president of Seattle-based Intermec Corp. and spending nine years as an executive at Motorola Inc. He became Yahoo chairman in 1999.

"This guy has a lot of background here, been there from very early on, and has done a real good job," said John Corcoran, an analyst with CIBC World Markets Corp. Finding a replacement will be difficult, like "getting someone to step in front of an avalanche," Corcoran said, considering the downward momentum of the company's stock and the Internet economy.

After starting as a search engine in the mid-1990s, Santa Clara-based Yahoo grew into a full-service information and shopping portal and at one point was the world's most popular destination on the Internet. Yahoo also was one of the Internet's biggest financial success stories, with revenue nearly doubling last year, to $1.1 billion, and profits of $291 million.

But the company's dependence on advertising, which accounted for nearly 90 percent of last year's revenue, has proven problematic in the dot-com meltdown. Also, the overall slowing of the economy has forced companies to slash their spending on marketing.