Yahoo’s Profit Tops Estimates
First-quarter profit from operations at Yahoo Inc. surged to $25 million from $3.3 million a year earlier as the largest Internet search site--and one of the precious few to make any money--added new services, new advertisers and new countries.
The Santa Clara, Calif.-based company said revenue tripled to $86 million and profit reached 11 cents a diluted share before charges related to some of its recent acquisitions.
Just earning a profit on the Net makes Yahoo unusual--and the company has done so for four of the last five quarters.
The results show that on the Web, size matters. Since Yahoo reaches so many people, second only to America Online, it can charge advertisers more. And it shows Yahoo’s success at playing to two audiences at once: the first-time computer buyer and the veteran Web surfer looking to start a home page with customized features.
“We’re getting a disproportionate share of new users” through alliances in the March quarter with such computer sellers as IBM, Gateway and Hewlett-Packard, Yahoo President Jeff Mallett said. “We continue to roll out a slew of new services, like auctions and shopping, so our current users had more to consume.”
Wall Street analysts had been expecting an average of 8 cents a share.
“They dramatically exceeded expectations,” said analyst Andrea Williams of Volpe Brown Whelan. “It was an excellent quarter.”
The number of pages viewed on Yahoo soared to 235 million per day in March from 167 million in December, spurred by offline advertising on Fox television and other outlets.
In the latest quarter, Yahoo added more blue-chip advertisers of its own, including Nestle and Hasbro, and began new operations in Taiwan and Hong Kong. Profit stayed close to even with the fourth quarter, even though most advertising-dependent companies are hurt after the end of holiday shopping.
Yahoo executives said Wednesday that they will continue to use the company’s highflying shares to buy other firms with Web expertise, as they did in two multibillion-dollar acquisitions announced this year. Yahoo said in January it would buy GeoCities, a Web-page builder, and last week announced that it would buy Broadcast.com, which plays radio and other audio and video programming over the Web. Results from those companies weren’t included in the quarter’s results.
Analysts said they were impressed that Yahoo has been able to keep spending down even as revenue climbs.
“That’s a sign of superior management, which should stay with them,” said Lise Buyer of Credit Suisse First Boston. “This company continues to get more for less, and someday people will care.”
A bellwether for Internet stocks, Yahoo shares rebounded to $212 in after-hours trading on Instinet late Wednesday after dropping $6.44 to $208.44 in regular Nasdaq trading before the earnings announcement.
Yahoo said that unlike rival portals, such as Excite and Lycos, it will stick to the Web as it grows. Excite was purchased by high-speed cable Internet company @Home, and Lycos agreed to be bought by USA Networks.
Since Yahoo has a market value of more than $40 billion, it is both a less inviting target and a formidable shopper for other properties.
“There’s a lot to be said for making hay while the sun shines,” Buyer said of the generous stock valuation.
Mallett said in an interview that Yahoo’s revenue is increasingly coming from new offerings but that the core of about 35 advertisers with multiyear, multimillion-dollar contracts still provided 30% of Yahoo’s first-quarter revenue, up from 35% in the fourth quarter of last year.
“The major portion is still ad-based, with a small portion in payment for transactions” from the biggest advertisers, he said. “We’re not in the business of being an online retailer.”
Less than 10% of revenue came from electronic commerce in the most recent quarter, and that proportion should stay the same for a while, Mallett said.
Buyer said Yahoo’s size is giving it economies of scale that will enable it to pull even further away from its competitors through more acquisitions.
“The bigger companies get bigger at a faster rate,” she said. “I would rule nothing out.”
* GeoCities reported a pro forma net loss for the first quarter of $6.93 million, or 21 cents a share, compared with a pro forma net loss of $2.9 million, or 12 cents a share, a year ago. The Marina del Rey-based company, which provides personal Web sites on the Internet, said the latest results exclude a one-time charge related to the termination of a distribution agreement. Revenue climbed 261%, to $7.84 million from $2.17 million.
“We are pleased with our revenue, reach and membership growth,” said Thomas R. Evans, CEO and president. The company said visitor traffic averaged 61 million page views per day in March, up 15% from December.
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Profit Progress
How Yahoo’s operating earnings--that is, profit before any special charges or gains--have risen since the first quarter of 1997, in millions:
First quarter 1999: $25.1 million
Stock Rocket
After sliding in late January and again in late February, Yahoo shares have resurged in recent weeks. Weekly closes and latest on Nasdaq:
Wednesday: $208.50, -$6.44
Source: Bloomberg News
