July 12, 2001 7:35 AM PDT

Yahoo rises as Semel touts gains

Shares of Web portal giant Yahoo surged Thursday after the company edged past estimates for its second fiscal quarter.

In addition, a number of Wall Street analysts upgraded or maintained their rating after the company reported pro forma earnings that beat financial estimates. Wednesday's report also marked the debut quarter for new Chief Executive Terry Semel.

"We believe the company is stabilizing: management turnover has slowed, revenue quality has improved, and costs are under control," Merrill Lynch analyst Henry Blodget wrote in an investor note Thursday.

Yahoo shares were up $1.34, or better than 7 percent, to $18.37 in early-morning trading.

The company reported pro forma net income of $8.7 million, or a penny per share, compared with $69.1 million, or 11 cents per share, in the same period a year ago. Analysts polled by First Call expected the company to break even for the quarter.

"Yahoo is in control of its future; my agenda is to stabilize and evolve its business," Semel said during a conference call with analysts.

Wall Street analysts said the performance was in line with expectations. However, there were few signs that the company would soon overcome the advertising downturn.

"As we had anticipated, the company came in ahead of our estimates and the Street's consensus," said Derek Brown, an equity analyst at WR Hambrecht. "On the other hand, I think that there's not enough upside to warrant significant investor enthusiasm."

Jordan Rohan, an equity analyst at Wit SoundView, added: "The problem is they're only marginally profitable. While operating metrics in terms of usage and audience growth is impressive, the monetization of that growth remains to be proven."

The report highlights the third consecutive lackluster quarter for the Web giant, which has suffered from the online advertising collapse and is seeking to develop new, premium services to diversify its business--a goal that has yet to translate significantly to the bottom line.

The company in April hired Semel, the former co-chairman of Warner Bros., to turn the company around, in part by beefing up its entertainment offerings.

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 Semel says no quick fix for Yahoo profits
John Corcoran, analyst, CIBC World Markets
Yahoo said it expects advertising to make up about 80 percent of its revenue for the full year, with the remainder made from corporate and premium services.

Including restructuring and acquisition-related charges totaling $45.4 million, Yahoo reported a net loss of $48.5 million, or 9 cents per share, compared with net income of $53.3 million, or 9 cents per share, in the same period a year ago.

Revenue for the quarter totaled $182.2 million, compared with $272.9 million a year ago.

Despite the expected flat earnings, consumer usage throughout Yahoo continued to grow. The company reported its total number of unique users grew to 200 million during June 2001 compared with 156 million last year. The company also reached 1.2 billion page views per day, while 71 million active registered users logged in to Yahoo in June.

Separately, Yahoo on Wednesday announced the appointment of three executives to head operations in three regions around the world. The company named Mark Opzoomer as the vice president and managing director of its Yahoo European operations, Allan Kwan as its head of North Asian business, and S.I. Lee as the chief executive of Yahoo Korea.

Earlier this year, division heads from Europe, Asia and Singapore resigned from the company.

Semel's coming-out party
Wednesday marked the first appearance by Semel since he took over as CEO. During a conference call with Wall Street analysts, he outlined his view of how Yahoo will position itself.

First on his list will be to develop more premium services, which will be featured in Yahoo's existing "vertical businesses" such as finance, sports and music. Each of these verticals will have revenue tied to paid, advertising and commerce-related areas. Meanwhile, Semel hopes to continue growing Yahoo's business services as seen in the company's Corporate Yahoo division.

In addition, Semel touted the company's turnaround in courting traditional advertisers. As previously reported, Yahoo has warmed up to advertising agencies in the past year and has held get-togethers to mend its relationship with the industry. Advertisers had complained in the past of Yahoo's arrogance and inflexibility over selling spots on its site.

Yahoo Chief Financial Officer Susan Decker noted that the company's percentage of non-dot-com advertisers grew from 70 percent to 74 percent, as the Web portal continues to try to wean itself off advertising dollars from Internet companies.

Semel said many of these changes will not happen overnight.

"I think of our challenges as an evolution rather than a revolution," he said during the conference call.

Semel highlighted a number of opportunities for the company. He plans to turn Yahoo into an "Internet partner of choice" through joint ventures and partnerships with major companies to exchange its audience reach for original content. He added that Yahoo would continue to look closely at acquisitions to strengthen its business and would focus more heavily on personalization.

Analyst reaction to Semel's longer-term predictions was mixed.

"Semel has a very challenging job," said Wit SoundView's Rohan. "It's hard to get people excited about premium services when there are no proven business models that have made that work."

 

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