Demonstrating that Wall Street's love affair with the Internet remains hot as ever, Yahoo! Inc., a Silicon Valley start-up that makes software for searching the global computer network, sold stock to the public for the first time on Friday and saw its price more than double in a day of frenzied trading.
Yahoo! shares were priced at $13 on Thursday, opened at $24.50, and soared as high as $43 before closing at $33 on Nasdaq--giving the company a market value of $848 million. Trading volume was a massive 17 million shares, meaning that the 2.6 million shares offered turned over more than six times during the day.
According to Nasdaq, it was the second-biggest first-day gain ever for a Nasdaq stock, behind Secure Computing Corp., another Internet start-up, which tripled in November. Yahoo!'s two young founders, former Stanford University graduate students David Filo, 29, and Jerry Yang, 27, are now worth about $165 million each--at least on paper.
The Yahoo! frenzy is startling in light of the fact that the company posted a loss of $634,000 on a mere $1.4 million in revenues for the last nine months of 1995--and faces a host of competitors who have nearly identical products.
Many who purchased Yahoo! shares Friday were individual investors eager to get in on the Internet craze, rather than the institutions that normally dominate initial public offerings. Yahoo! got a boost from its quirky name too, analysts said: Because it's so easy to remember, many Internet users, especially novices, instinctively go to the Yahoo! page (http://www.yahoo.com) when they're looking for something on the Internet's World Wide Web.
Yahoo! also benefited from the charm and good public relations of Filo and Yang, who built their search tool as a distraction from their engineering studies. And the company also has a powerful institutional backer--Softbank Corp., the largest software company in Japan and owner of the Ziff-Davis trade publishing empire--which used the offering as an opportunity to raise its stake in Yahoo! to 37.02% from 20%.
"Their business plan is better because it really talks about building a diversified media company with different kinds of properties," Tony Perkins, publisher of The Red Herring, a technology finance magazine, told the Associated Press.
At least six companies have so-called search engines for sorting through the reams of information stored on the Internet. They're free to Internet users, and Yahoo! and its competitors hope to make money by charging advertisers for display space on the screen users go to when they begin a search.
But no one knows just how much advertisers are willing to pay to reach Internet users--still a small audience when compared to that of traditional media, and one that tends to be fickle. Internet users also have little loyalty to any one search engine.
The many uncertainties of doing business on the Internet, however, have not dimmed the enthusiasm of investors, who seem more willing than ever to gamble on unproven companies--or at least make a quick buck during the stock's initial run-up.
Two other search engine companies recently completed initial public offerings, but the fate of their shares since then could be an ominous sign for Yahoo! investors. On Friday, Excite fell 87.5 cents to $14.25, a new low, and Lycos dropped $1.50 to $17. Excite shares had been as high as $21 recently, and Lycos had reached $29. A third, Infoseek, is expected to go public later this month.
"The search engine companies all have a handful of content and a name," said one industry watcher who declined to be named. "Eventually it becomes a commodity."
About 800,000 to 1 million people use Yahoo's Web search engine each day, making it one of the biggest. Analysts disagree on whether Yahoo!, Digital Equipment Corp.'s Alta Vista or the Lycos Inc. search engine is the most heavily used.