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  Investors Go "Yahoo!" over Earnings Report

By Chris Coyle
July 14, 2000

Internet portal Yahoo! (NASDAQ: YHOO) reported better than expected earnings of $0.12 a share after the closing bell Tuesday calming investors fears of falling dot-com advertising revenues.

Revenues for the second quarter were $270 million, up 109 percent from the $128.5 million reported the same quarter last year. Sequentially, revenues were up 18 percent. Net income came in at $74 million, or $0.12 a share excluding an acquisition-related charge, compared to the $27 million, or $0.05 a share, the company made in the same quarter last year.

This number beat analysts expectations of $0.10 a share and met the whisper number of between $0.11 - $0.12 a share.

Yahoo!'s operating margin, which was 37.6 percent, also met expectations.

Shares of Yahoo! rocketed 19 7/16 to 124 15/16 on Wednesday as investors reacted to the news.

Traffic
Yahoo! is continuing to draw in web surfers. Daily page views for the quarter rose 9 percent to 680 million people from the 625 million reported last quarter. Unique users worldwide for the quarter grew 7.6 percent to 156 million people from 145 million. Registered users grew to 155 million, a 24% increase.

Yahoo! is also expanding globally. An average of 33 million page views were recorded on Yahoo! Europe per day, while last month, Yahoo! Japan had 20 million unique visitors. Despite the increased global reach of the company, shown by the fact that 40 percent of Yahoo! users are from outside the U.S., only 15 percent of sales come from those users. The 15 percent, however, is an increase from the 9 percent in the same quarter last year.

Advertising
Currently, 80 percent of their revenue come from advertising. It is obviously the most important part of Yahoo!'s business at the moment. Investors were very concerned about advertising revenues for the quarter, citing that cash-poor dot-com companies would not spend as much on advertising as they had in the past. These concerns were put to rest yesterday, at least for the moment. The company stated that "financially questionable clients" accounted for less than 10 percent of revenues. How they determined "financially questionable clients", I have no idea. The total number of advertisers increased a small amount, from 3,565 last quarter to 3,675 this quarter. Yahoo! noted that all 50 of its top advertisers re-signed with them, while 98 of their top 100 advertisers did the same.

Even with advertising worries, the long-term future of advertising seems to be strong. Jupiter Communications recently predicted in a report that advertising sales on the net would reach $11.5 billion in the year 2003. This would be up from the $4.6 billion in ad sales in 1999.

Even with these encouraging numbers, Yahoo! is pursuing more diversified revenue streams. Some of these are:

  1. Corporate Yahoo. Customized web portals for corporate customers.
  2. Yahoo Everywhere. Getting Yahoo! onto cell phones, PDA's, pagers, and other hand-held devices.
  3. ISP. Teaming up with other companies to provide free internet access.

A Valuation Concern
With this earnings report, some investors brought up some renewed valuation worries. This is proven with its P/E ratio of 329. This is very high by itself, and compared to other net companies, like AOL (NYSE: AOL) with its P/E ratio of 139, and Lycos (NASDAQ: LCOS) with its P/E ratio of 148, shows that Yahoo! is more richly valued than some of its competitiors.

This has become increasingly worrisome to investors as internet company's valuations are becoming more scrutinized. This is evident in the stock price, as the stock has fallen from a 52-week high of 250 1/16 to its current price of 122 9/16.

The Future of Yahoo!
Any investors who believe in the future of this company have themselves a good entry point into the stock. The worries concerning the stock are more or less short-term in nature. Yahoo! has many things going for it as a long-term internet company.

It has a huge brand name; even if you are not familiar with the net, you've probably heard of Yahoo!, and if you are familair with the net, you're probably a registered user there! Also, Yahoo! is a great web site. It has so much information; everytime I go there, I find more and more new stuff to do. It is like the Wal-Mart (NYSE: WMT) of internet content. It has everything. Lastly, Yahoo! is profitable. Profitablitity is a key ingredient missing in many internet companies, but is not absent at Yahoo!.

This is by no means a detailed analysis of Yahoo!'s business, but rather just a short, quick look at it. However, I can't help but imagine the potential of this company many years down the road. Even though short-term movements may depress the stock price, it appears that Yahoo! is doing things right for the long-term.

Now it's your turn to Voice an Opinion!
Vote in the StockChamp Poll located on the right-hand side of the screen on Yahoo! as an investment possibility for investors. Voice your opinion!

 
 

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