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Yahoo! wows Street
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July 12, 2000: 3:21 p.m. ET
Net portal surprises investors with strong 2Q revenue, beating estimates
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NEW YORK (CNNfn) - Yahoo! Inc.'s stock exploded Wednesday on a better-than-expected earnings report, surprising investors who were concerned that the Internet icon would post poor advertising revenue.
Shares in the Santa Clara, Calif.-based Internet portal rocketed 20-3/4 to 126-1/4, a 20 percent gain, by Wednesday afternoon, after reporting strong earnings and revenue numbers Tuesday night.
 Yahoo! reported second-quarter earnings of $74 million, or 12 cents a share. That beat analysts' consensus estimate of 10 cents a share, and was up 173 percent over the year-earlier quarter, in which it earned $27 million, or 5 cents a share, on revenue of $128.6 million.
Perhaps more important, Yahoo! (YHOO: Research, Estimates) reported revenue of $270 million, $20 million better than Wall Street's consensus forecast, indicating its advertising revenue wasn't hurting at all.
In addition, traffic on the company's Web sites averaged 680 million page views per day in June, up from an average of 465 million per day in December and 625 million in March. During June, Yahoo!'s global audience grew to more than 156 million unique users from 120 million in December 1999.
Tim Koogle, Yahoo!'s chairman and chief executive officer, told CNNfn that the company's healthy advertising revenue could be attributed to geographic diversification of its revenue sources and careful qualification of its advertising accounts. For more on Koogle's comments click [WAV 451KB] or [AIF 451KB].
Securities analysts issue bullish reports
Securities analysts issued a raft of positive reports on Yahoo! Wednesday morning. Merrill Lynch analyst Henry Blodget maintained his "buy" rating on the stock and said the portal had addressed some - but not all - the concerns about the impact of weakness in Web ad spending.
Blodget said he attributes the 12 cents a share earnings to higher-than- expected cash interest and fewer diluted shares outstanding. He also said he remains confident in Yahoo!'s competitive position and continued strong growth, but that growth likely will be less spectacular in the next few months than the "rosiest scenarios of six months ago."
Blodget raised his 2000 revenue estimate to $1.08 billion from $1.04 billion, and his 2001 estimate to $1.41 billion from $1.35 billion. He boosted his 2000 earnings estimate to 48 cents a share from 44 cents, and his 2001 estimate to 59 cents a share from 54 cents. Yahoo! shares should trade well into the fourth quarter, he said in a research note to clients.
Mary Meeker at Morgan Stanley repeated her "outperform" rating on Yahoo! and raised EPS estimates for 2000 to 47 cents from 44 cents, and to 60 cents from 54 cents for 2001.
"Yahoo!'s financial model shows great flexibility, in our view," Meeker said in a research note. "Yahoo! should be a core holding for growth investors. The company has one of the best financial models we have ever seen and we consider it to be one of the world's most powerful brands."
Likewise, SG Cowen analyst Scott Reamer raised his revenue and earnings per share estimates for Yahoo!
"The company provided evidence that it's relatively immune to a dot.com ad spending slowdown," Reamer said in a research note. "We would be buying Yahoo! to establish positions ahead of what we believe will be a strong second half."
For more analyst comments on Yahoo! click here
Beginning on July 7, when Deutsche Banc Alex. Brown downgraded the company to "buy" from "strong buy," Yahoo!'s stock began to fall from the $120 range. Then other analysts began questioning the company's ability to maintain the pace of its earnings growth and to attract advertisers, particularly dot.com advertisers.
By Tuesday afternoon trading, Yahoo!'s stock had fallen to nearly $100 a share, a $20 drop in just three trading days. Because Wall Street sees Yahoo! as an indicator of the health of the entire Internet sector, other big names in the category suffered Tuesday, including Amazon.com (AMZN: Research, Estimates), eBay (EBAY: Research, Estimates), and Lycos (LCOS: Research, Estimates).
Scott Kessler, Internet analyst at S&P Equity Group, still thinks the company's stock is overpriced. At a share price of 126-1/4, Yahoo! now sells for an astronomical 263 times what analysts now estimate it will earn in 2000. Its market capitalization of $69 billion is equal to that of Compaq Computer and Gateway combined and also about 63 times its expected revenue for 2000. 
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