Even laggard stocks like YHOO are coiling here and are poised for a strong breakout in the week or so ahead.
YHOO is up over 50% in the last month ($9ish to $15ish) -- almost straight up. Respectfully, just where is the coil in that move? Seems more likely to retrace some of that up move. Longer term looks like strong support at $9ish and some serious resistance at $20ish.
Here is one view from Morningstar suggesting (albeit on a fundamental basis) some serious downside for YHOO.....
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Yahoo now swims with sharks 2002-11-01
As the 'Net portal leaves its core competency to compete with the likes of AOL and Microsoft, its prospects look dim.
by T. K. MacKay, stock analyst, Morningstar
We fear that as Yahoo! (YHOO) changes its business model by entering areas like broadband access, games, and classifieds, its overall competitive advantage could deteriorate as a result of increased rivalry from the likes of America Online (AOL) and Microsoft (MSFT). We wouldn't touch Yahoo above $5 per share.
According to the Internet Advertising Bureau, the top 10 Web sites, including Yahoo.com, received 77 percent of the $7.2 billion spent on advertising in 2001. Yahoo derives its competitive advantage from a loyal user base of more than 200 million visitors a month. With a cult following comes lucrative advertising revenue, which tops $500 million on an annualized basis.
Advertising is a cyclical business, however, as evidenced by Yahoo's 35 percent drop in revenue in 2001. The company has made a big push to shield its top line from the volatile advertising market, which contributes just 59 percent of its revenue compared with more than 90 percent in 1998.
New business lines like fees, listings, and transactions contribute 41 percent of revenue, up from less than 5 percent in 1998. The company's recent moves, including the acquisition of HotJobs, a partnership with SBC Communications (SBC) to deliver broadband access to consumers, and a big push into subscription music and online games, are distancing Yahoo's overall business from the advertising market even more.
In doing this, Yahoo is moving away from the business in which it has a big competitive advantage and stepping on rival turf. We believe that both AOL and MSN have created alliances that outpace Yahoo in terms of the content that they can deliver to their respective online networks.
We're skeptical about how many Yahoo users are willing to pay $14.95 a month to play online games or listen to music. We are also concerned that content from businesses like PressPlay and Yahoo Movies won't hold a candle to AOL Time Warner, once the latter delivers content to the Web in broadband style.
Historically, Yahoo's Web sites have provided content that earned the company a substantial economic moat and fat advertising fees. When this content moves behind a fee-based wall, however, Yahoo may lose its appeal to the average user. No matter how popular Yahoo may be to consumers today, the online media industry has one sustainable trait: There are plenty of substitute goods that consumers can choose, especially if these goods can be had for free. For these reasons, we would look for a substantial margin of safety--one of 50 percent or more--before considering the stock.
Troy
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