April 6, 2000 3:40 PM PDT

Yahoo shares fall after earnings report

Yahoo shares ended the day down about 7 percent after fluctuating between positive and negative territory following the company's report that first-quarter net income slightly surpassed analysts' expectations, as traffic and advertising revenue jumped.

At the 1 p.m. PT close of regular trading, the company's stock was down $11.56 to $154, with nearly 28 million shares changing hands. The shares wavered in morning trading, rising to a high of $171.25 and hitting a low of $150.69.

Several leading investment banks reiterated their "buy" ratings on Yahoo. Donaldson Lufkin & Jenrette and Credit Suisse First Boston both raised the company's 2000 estimate to 44 cents from 39 cents.

Meanwhile, E*Offering, an Internet investment bank, reiterated its "strong buy" rating on Yahoo.

"In a marketplace where investors have been concerned about some Internet companies' lack of profitability and lack of cash holdings, Yahoo is profitable and is sitting on a war chest of about $1.2 billion in cash," senior analyst Patrick Winton said in a report. "They are the true Internet blue chip."

Yahoo reported net income excluding special items of $63.3 million, or 10 cents a share, for the three-month period ended March 31. That compares with net income of $17.7 million, or 3 cents per share, for the first quarter of 1999.

Analysts expected Yahoo, which also named a new chief financial officer today, to earn 9 cents per share, according to a poll of 24 brokerages conducted by First Call.

Revenue for the quarter topped $228 million, compared with $104 million for the same period last year.

"Yahoo is the single most important entity on the Internet," said Safa Rashtchy, an analyst at U.S. Piper Jaffray. "Banner ads are just a part of their revenues. They are becoming highly diversified."

Rashtchy added that he intends to raise his revenue and earnings estimates for the next quarter by 10 percent to 15 percent.

Yahoo stock The earnings results were issued after the markets closed yesterday; in after-hours trading the shares dipped to about $159. Yahoo has traded as high as $250 and as low as $55 in the past year.

Yahoo reported that it served 625 million daily page views in March, compared with 465 million in December.

The company also announced that CFO Gary Valenzuela will retire in July to spend more time with his family. He will be replaced by Susan Decker, the head of research for Donaldson Lufkin & Jenrette.

Executives at Yahoo--one of the few profitable online ventures, with cash reserves of nearly $1.2 billion--promised continued financial conservatism. But they were bullish about the company's growth strategy during an hour-long conference call with analysts following the earnings release.

Among the reasons for their optimism:

 The portal had 25 million new registered users (who provide critical marketing data) in the first quarter for a total registration base of 125 million users.

 Yahoo logged 47 million users in March alone.

 Yahoo facilitated more than $1 billion in e-commerce transactions.

 Yahoo email customers sent and received 3.6 billion messages in March, up from 2.5 billion in December.

 Yahoo has a 70 percent reach among Americans with Web access at work, making it the leading Web site of corporate desktops.

 Non-U.S. revenues grew to 14 percent of consolidated revenues, not including revenues from Japan, where Yahoo is the No. 1 portal.

"It was a very strong quarter from top to bottom," said analyst Derek Brown of San Francisco-based WR Hambrecht. "I certainly wasn't expecting the company to post a blowout quarter, but they did very well."

Brown expected the company to generate $206 million in revenue and earn 8 cents a share.

"They did very well when you remember that the first quarter is a typically slow quarter in the media business in terms of advertising," Brown said. He

Yahoo
at a glance

HQ: Santa Clara, Calif.  
CEO: Tim Koogle  
President: Jeff Mallett  
Employees: 1,992  
Annual sales: $589 million  
Annual income: $61 million  
Date of IPO: April 1996  
Ticker: YHOO  
Exchange: Nasdaq

More:
Yahoo quotes
Yahoo news

Yahoo messages
Source: Bloomberg 4/5/00

also said that Yahoo did well considering the "law of big numbers," which states that companies face increasing difficulty to improve earnings as they expand.

Executives emphasized that international growth was a key component in the company's overall business strategy.

Yahoo has country-specific portals in 22 countries, not including the United States. It launched a site in Argentina during the first quarter to supplement existing sites in Mexico and Brazil.

Yahoo has 501 employees outside the United States, comprising 22 percent of the company's total workforce.

International orders made up 30 percent of Yahoo's $1 billion in e-commerce transactions. Of the company's 3,555 advertisers in the first quarter, about 1,200 were located outside the United States.

About 40 percent of Yahoo's total page views came from abroad, and international growth vastly outpaced domestic growth. The company plans to enter international markets aggressively, and it will use its current new-country launch strategy to enter new markets.

"International is a huge, huge market for Yahoo," the retiring Valenzuela said.

Koogle predicted "interesting partnerships going forward" with local content providers in target markets overseas, because Yahoo cannot launch all planned international portals alone.

"I'd say that part of the equation we've gotten right and have exercised at least 22 times around the world and will continue doing so," Koogle said. "It would sound cocky to say we've got the formula nailed 100 percent."

Koogle also emphasized that Yahoo will continue to forge partnerships and will develop products internally to capitalize on the burgeoning wireless market.

"We expect to see increasing proliferation of devices. We remain agnostic...and we remain intent on making sure Yahoo services are available on as wide an array of products as possible," Koogle said. "Believe me, we're as paranoid as ever and as committed as ever to growing our business."

News.com's Sam Ames contributed to this report.

 

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