Yahoo! (YHOO): Short sellers walk away

All the news about Yahoo! (NASDAQ: YHOO) seems bad. When comScore recently looked at results from search engines and combined them with results from other major sites like Craig's List and Wikipedia, Google's (NASDAQ: GOOG) share of the market was larger than previously believed while Yahoo!'s went down. The web portal's earnings for the second calendar quarter were mediocre and its revenue is no longer growing as fast as overall internet advertising. One point of view says that display advertising is now moving to social networks like MySpace and Facebook, which will hurt Yahoo! over time.

Yahoo! came out with a new program for targeting display advertising based on user behavior. The company has already began to use the product, dubbed SmartAds, in its travel section.

None of this, not even the firing of the company's long-time CEO, has done much for Yahoo! stock. It is now down 27% over the last six months and currently trades at $23.59 about $1 above its 52-week low. Yet, fewer short sellers are willing to invest on the basis that the shares will continue to fall. In August, shares sold short in Yahoo! fell 8.5 million to 62.3 million.

There are constantly buy-out and merger rumors around the stock, and perhaps there is some hope that the company's slow ad growth has bottomed. What is just as likely, however, is that Yahoo! has found a natural floor between $22 and $23. Even with poor quarterly announcements and a slow introduction of its Panama search platform, Yahoo!'s stock has stayed above this level since March 2004.

That means it might take a lot to push it lower.

Douglas A. McIntyre is a partner at 24/7 Wall St.