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Yahoo! market share of online ads declines

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NEW YORK — Yahoo! Inc.'s share of the online advertising market is falling, and the company is growing more slowly, said Mark Rowen of Prudential Securities Inc. Meanwhile, the largest Internet search directory's stock is pricey relative to earnings, the analyst said.

So why did Rowen initiate coverage on Yahoo with an "accumulate" recommendation, the equivalent of a "buy"? Investors said it's an example of Wall Street's unwillingness to put a "sell" rating on a stock.

"This is a very cautious report, and it does not jibe with the 'accumulate' rating," said Donna Jaegers, analyst and assistant portfolio manager for the $4 billion Invesco Telecommunications Sector Fund, which holds Yahoo shares. It's "the weakest 'buy' rating you can give — 'accumulate' means they're still hopeful they'll get a piece of the investment banking business."

While securities firms' brokerage and investment-banking businesses operate independently, investors said analysts are often unwilling to criticize companies or give low ratings for fear of losing future business for their firms, such as arranging stock or bond sales or advising on acquisitions.

Rowen didn't return a call seeking comment.

Of the analyst ratings tracked by Bloomberg this year on all companies, 74 percent are buys, 25 percent holds and 1.6 percent are sells.

Of the 10 companies Rowen follows, he rates three "strong buy," two "accumulate" and five "hold." Digital River Inc., Rowen's other "accumulate" rated company, has dropped 90 percent from its peak in January 1999.

Rowen, the first Prudential analyst to follow Yahoo, said the stock is likely to reach 155 in 12 months, 18 percent more than the current share price. The stock has jumped an average 153 percent annually since it began trading in April 1996. Still, the shares have fallen 39 percent this year.