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Yahoo!, Intel beat the Street
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January 12, 1999: 8:36 p.m. ET
Solid results from two technology titans bode well for the sector
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NEW YORK (CNNfn) - Two technology bellwethers reported solid fourth-quarter profits Tuesday, a move which could provide investors with new optimism about the industry in general and Internet stocks in particular.
Intel Corp. (INTC), the world's largest semiconductor maker, sold more chips in the last three months of 1999 -- and made more money on them -- than in any three-month period in the company's history.
Meanwhile, Yahoo! Inc. (YHOO), reported its fourth-quarter revenue nearly tripled, thanks to booming traffic on its Internet site, surging advertising revenue and a growing e-commerce business.
Analysts said the better-than-expected quarterly results from Intel and Yahoo! bode well for the technology sector.
"I think the dominant theme is the extraordinary strength in the PC market and obviously the microprocessor market in the fourth quarter," Charles Boucher, industry analyst with Donaldson, Lufkin, Jenrette, said.
Intel beats the Street
Intel earned $2.1 billion, or $1.19 per share, in the three months ended Dec. 26, compared to $1.74 billion, or 98 cents per diluted share, for the same period last year. Analysts surveyed by First Call had forecast earnings of $1.07 per share. Sales rose 17 percent to $7.6 billion from last year's $6.5 billion.
Investors cheered the earnings news, with Intel stock climbing to 139 in after-hours trading, after closing down 4-1/16 at 135-11/16 on the Nasdaq.
In a move which dampen investor enthusiasm, Intel said it expects revenue for the first quarter of 1999 to be down from fourth-quarter revenue of $7.6 billion due to seasonal factors. In the first quarter of 1998, the semiconductor firm earned $1.27 billion, or 72 cents per diluted share, on revenue of $6 billion.
However, the company said gross margins, or the percentage of sales remaining after the costs of production are factored in, are expected to be down only slightly in the first quarter of 1999 from the fourth quarter's 58 percent. And, for all of 1999 the company expects its gross margin to be about 57 percent, "plus or minus a few points," compared to 54 percent in 1998.
"I'm surprised it was this good, quite honestly," said Dan Niles with BancBoston Robertson Stevens. "And more importantly the guidance for next year on the gross margin line of 57 percent. I think people are going to be very encouraged given that's up pretty substantially from what they did this last year."
For the most part, Intel said it had a great quarter. However, company officials acknowledged Intel shipped less of its low-cost Celeron processors than it had expected.
Intel Chief Financial Officer Andrew Bryant vowed to win back market share this year, signaling a possible price war at the low end of the PC market.
Yahoo! also beats the Street
Yahoo! also surprised investors by reporting better-than-expected profits and announcing a 2-for-1 stock split after the close.
The Santa Clara, Calif.-based Internet giant reported pro-forma earnings of $25.1 million, or 21 cents a share, on revenue of $76.4 million. The company easily beat estimates by Wall Street analysts, who expected Yahoo! to post earnings of 16 cents a share.
Those profits also far exceeded the company's year-ago levels, when Yahoo! reported pro-forma earnings of $1.9 million, or 2 cents a share, on $26.6 million in revenue.
Including one-time charges, Yahoo! posted net income of $18.5 million, or 16 cents a share.
The company also finished the quarter with $482 million in cash assets, compared with $108 million in last-year's fourth quarter. Also, with a gross profit of $68.5 million, Yahoo! posted fourth-quarter gross margins of 90 percent.
"1998 was another landmark year for Yahoo!," said Tim Koogle, chairman and chief executive. "We consistently and carefully managed the business, executed our original plan and invested in growing the company while increasing profits each quarter."
Company officials cautioned, however, that first-quarter revenue are typically softer than fourth-quarter figures, as advertisers cut their spending after the holiday season.
Yahoo! said 75 percent of its revenue came from advertising, while electronic commerce was responsible for the remaining 25 percent. Yahoo!'s e-commerce revenue are derived from deals with its premier merchants on the Yahoo! Shopping site.
The company also said it had increased the number of advertisers on its site to 2,225 in the quarter from 1,960 in the third quarter.
Yahoo! shares tumbled 12-1/2 to close at 402 in Tuesday trade before slipping to 401 in after-hours trade.
Internet shares fell sharply in Tuesday trade after a remarkable bull run Monday. Though Yahoo! is considered a bellwether stock for the Internet sector, analysts said it's tough to predict what effect its earnings report will have on the sector as a whole in Wednesday trade.
"These are good, solid numbers by any measure," said Lise Buyer, an analyst at S&P Equity Group. "The underlying fundamentals are strong, but the whole sector is trading on emotion, not fundamentals."
Traffic gets heavier
Yahoo!'s traffic continues to surge. The company said page views on its global network jumped 16 percent to 167 million per day, compared with 144 million in the third quarter.
During the quarter, the company introduced the Yahoo! Shopping page and Yahoo! Address Book service to its site.
Not all analysts, however, find much excitement in Yahoo!'s increase in page views.
"I care more that revenue grew faster than page views," Buyer said. "In an ideal world, revenues will always grow faster than page views."
Though analysts consider Yahoo! the clear leader among Web portals - the first site users see when they log onto the Internet - the company face will face tough competition in light of recent industry consolidation, particularly America Online Inc. 's (AOL) proposed $4.2-billion acquisition of Netscape Communications Corp. (NSCP).
Also, GO Network, a joint portal venture between Infoseek Corp. (SEEK) and Walt Disney Co. (DIS), officially launched Tuesday.
In a conference call with analysts, Koogle said Yahoo! is well positioned to handle the additional competition.
"This is a big market, and it's more than big enough to support several large global branded networks," he said. "We suspect there won't be any major shifts in the landscape. There may be some consolidation, but we don't expect anything major."
For the fiscal year 1998, Yahoo! reported earnings of $49.9 million, or 45 cents a share, on $203.3 million in revenue, compared with a 1997 net loss of $425,000, or zero cents a share, on $70.5 million in revenues.
-- by staff writers John Frederick Moore and Nicole Jacoby. 
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