Did Yahoo Break the Fever?

Scott Kessler of S&P’s thoughtful new “sell” report on Google does something unusual and highly useful. It contains the following useful precis of another analyst’s (Scott Devitt) recent Google downgrade:

Analyst Scott Devitt thinks GOOG outstg co., but thinks it overvalued…. Has historically noted GOOG’s excessive valuation but maintained hold rating due to cont. momentum, positive sentiment… Believes sell side expectations, ratings have risen throughout ’05 to point that will limit upside potential… Notes YHOO’s results last night broke sector momentum, sentiment which should force investors to focus more on what these bizs are worth rather than where stocks may be going… Also cites unsustainable pay/click pricing as an issue…

It’s a good question analyst Devitt asks. Has the news on Yahoo broken the fever dream in which Google investors find themselves?

[Update] The ever-entertaining Jeff Matthews makes me feel like it’s my fever dream, not Devitt’s. Here he is on why Devitt isn’t really worth listening to:

Indeed, Devitt has been the analytical equivalent of the stopped-watch on Google, telling Bloomberg back in October “For me to get positive [on Google] I need a pullback of somewhere between 20 and 25

The pullback didn’t happen.

Meanwhile, at the same time Devitt maintained a “Hold” on Google in light of “increasing risks” to its
business model, he was one of the Street’s biggest fans of Overstock.com, rating that stock a “Buy” with a $55 price target.



  1. Jeff makes some good points about why Devitt’s opinion is unimpressive but in light of Yahoo’s weak showing and less impressive outlook he doesn’t make a case for owning GOOG. After all, Google is currently an advertiser whose market cap was greater than 50% of the toal U.S. advertising budget. An unsustainable ratio. Given that Jeff is primarily a financial advisor I would expect him to somewhat agree with Devitt’s analysis of the increased risk of owning Google.
    After 25 years in the stock business it still shocks me how intelligent people have not yet figured out that the road to successful stock trading is not picking stocks but managing risk!

  2. Franklin Stubbs says:

    The most devastating aspect of Matthews’ expose, in my opinion, is Devitt’s high praise of OSTK. Overstock.com as number three in the public consciousness, right behind Ebay and Amazon???? The guy is clearly a schmuck (Devitt, not Matthews).
    Who actually uses analyst opinions to form their own opinions anyway? These guys (analysts) are little more than emotional props. If an investor has a ‘gut feel’ on a stock, he then goes and finds an analyst with similar views to justify it.
    This strange habit of valuing surface level confirmation, no matter how pointless or contrived, is a psychological holdover from the hunting and gathering days. The hairless ape known as Investor, er, Man has not progressed all that far from his knuckle dragging roots.

  3. Mike Lawrence says:

    As soon as the online advertising world wakes up and realizes how much of their “pay per click” dollars are spent on click fraud all of these online “giants” stocks will come tumbling down. Anybody still have XOOM.com stocks? I’m selling LOL