Future of Yahoo! in doubt

The future of popular internet portal Yahoo! was thrown into doubt last night after trading in its shares in the US was unexpectedly suspended.

Amid a whirlwind of speculation and rumour, analysts said they thought Yahoo! was preparing to issue either a profits warning, details of senior management changes or possibly news that it was being taken over.

Yahoo! shares dropped sharply in early trading before dealing was halted, leaving them valued at $20.97 each - their lowest level since 1998.

The Santa Clara, California-based firm refused to comment on the reason behind the suspension but said it was planning to host a conference call for analysts and the media later in the evening.

Henry Blodget, the Merrill Lynch analyst who was formerly one of the sector's most bullish watchers, released a note to clients speculating on a number of possible scenarios, including a profits warning or a takeover.

One theory gaining wide circulation was that Yahoo! may be about to sign a major strategic alliance with Vivendi, the French media company, which is selling its stake in AOL France.

There was also talk that Tim Koogle, the chairman and chief executive of Yahoo!, may be about to quit after disagreements over the company's strategic direction. A formal link-up with eBay has also been rumoured.

"Given the recent executive departures, the rough economic environment and the emerging consensus that a recovery will be gradual, we would not be surprised if Yahoo! were entertaining offers," said Mr Blodget.

Viacom, Bertelsmann, News Corporation and Walt Disney Company are seen as alternative possible suitors.

Rumours that an important announcement was about to emerge from Yahoo! began circulating after it unexpectedly pulled out of an appearance at a Merrill Lynch conference scheduled for today. Yahoo! co-founder Jerry Yang added to the confusion by cancelling a speech at another conference in Utah yesterday.

Mr Blodget suggested that Yahoo! could give also guidance on its earnings or announce a restructuring following a slump in its share price over the past year. "To our knowledge Yahoo! has never cancelled the day before a conference. As a result, it seems prudent to review the usual reasons that lead to such cancellations," he said.

Advertising fees account for around 90% of the company's revenues and analysts believe that the softening in advertising spend over the past few months could force the firm to restate its earning estimates.

"It's been a tough quarter for internet advertising, and Yahoo! continues to go through its transition, and they may be coming out with an earnings guidance warning," said Abhishek Gami of William Blair & Co.

Lowell Singer of Roberston Stephens said: "It is by no means a slam dunk that Yahoo! will make even the low end of revenue projections."

Jordan Rohan, an analyst at Wit SoundView, said Yahoo! could even announce a cost-cutting programme which might includes layoffs among its 3,000 staff.

Yahoo! has been hit by several senior management changes recently. Last month Fabiola Arredondo, chief executive of Yahoo! Europe, quit to pursue "private business interests". The heads of Yahoo! units in Asia and Canada have since followed her out the door.

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