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Yahoo employees knew all day the news wouldn't be good, but investors still held out hope that the company was going to announce a miraculous merger with a media giant after trading of Yahoo stock was halted for the day early on Wednesday.
The miracle never happened. Instead, Yahoo announced that its popular CEO, Tim Koogle, would be stepping down and that its first quarter revenues and earnings will fall well short of Wall Street expectations.
On Thursday, Yahoo (YHOO) shares tumbled more than 20 percent at the start of the day, ending down 18 percent at $17.25, on volume of 52 million shares.
Koogle, who said he will remain as "an active and dedicated chairman," has headed up Yahoo since August 1995, and was the sixth employee to be hired back in Yahoo's glory days.
A source inside the company, who preferred not to be named, said the mood at Yahoo was "sad, mad and scared."
"This company has created more instant millionaires than any company other than Microsoft," the source said. "We thought we were untouchable, we thought we had a real and solid business model. We thought we would be among the few who survive these bad times. Now I wonder if anyone can survive."
Yahoo is considered to be an indicator of the general health of dot-com stocks, and some financial experts are speculating that the daylong stoppage in Yahoo trading was an effort to keep panic at bay.
Trading of Yahoo shares was halted soon after Nasdaq opened on Wednesday because of "pending news." Nasdaq, not Yahoo, made the decision to halt trading.
"My impression is that Nasdaq got rattled and decided to halt trading before the entire sector took a bad dive," said Daniel Wiseman, a financial analyst at Chase Manhattan.
"I also believe that too many people in the industry knew what was going on, and the early halt stopped insiders from selling. It was an unusual but not unprecedented move," Wiseman said.
Others said the all-day trade stoppage wasn't unusual, but agreed that Nasdaq halted trades because of rumors.
"There was a lot of buzz that something was up. This probably resulted in an order imbalance with many more sellers than buyers, so they suspended trading. This is not all that unusual, especially with the new full-disclosure rules which require, among other things, that there be no private chats with select market makers," said Tom Minutaglio, a retired broker.
"The news probably leaked and the rumors flew, so Nasdaq had to put a lid on it."
Investors said that after-hours trading was "mayhem" but trading did not descend into frantic sell-off.
"Many of us are convinced that this mess that the tech market is in is all going to turn around within the year," said investor Tony Montegro. "Only people that are in the market for short-term profits are freaking out. Yahoo will be back, stronger than ever, and I will see a solid profit."
Yahoo executives, in a Wednesday evening conference call to media and analysts, said that the company expected a break-even first quarter on revenue of $170 million to $180 million, far below analysts' predictions of revenue of $232 million.
That expectation had already been revised downward on Jan. 10, when Yahoo issued a warning. Before that, Yahoo had been expected to bring in revenue in the neighborhood of $325 million.
Analysts became audibly agitated during Wednesday's call when, after pressing for more information on the company's long-term prospects, Koogle said that Yahoo, like many other companies, was unsure about how 2001 would turn out.
"We simply don't have good visibility on the back half of the year," Koogle said.
Although rumors of a top-level shakeup were flying on Wednesday, few suspected that Koogle would leave Yahoo.
Wiseman said that Yahoo is stressing the need for more "seasoned senior management" but notes that Koogle was hired specifically because of his business acumen.
"He was in his late 40s when he was hired, and the average age of employees at Yahoo was mid-20s. He was touted as the voice of reason in that company, and was the one who convinced (Yahoo founders) Jerry Yang and David Filo to accept advertising on the website," Wiseman said.
"The thing that keeps running through my mind is that Tim was one of the few Yahoo executives who didn't have the company logo tattooed on himself somewhere," said the Yahoo source.
"I guess he doesn't regret not getting the tattoo now. But oddly, the tattooed people are all still here."
The source said that no one within the company blames Koogle for Yahoo's downturn. Wiseman agreed.
"Koogle did an excellent job. There is nothing else he could have done. The market is difficult now; people aren't investing heavily in tech stocks, and are wary of Web advertising. Koogle is a dot-com scapegoat, offered to appease the gods and to head off yet another dot-com disaster."
