Yahoo Ends Quarter Slightly Ahead of Profit Estimate
Yahoo Inc. gave nervous “dot-com” investors some good news Wednesday after the markets closed, reporting first-quarter profit that beat expectations on soaring revenue.
Yahoo, which owns the most popular network of sites on the World Wide Web, reported that pro forma profit rose to $63.3 million, or 10 cents a share for its quarter ended March 31, from $17.7 million, or 3 cents, a year earlier. Both figures exclude charges for acquisitions.
The average Yahoo earnings estimate from brokerages was 9 cents a share, according to First Call. Unpublished estimates were several cents higher, and in past quarters Yahoo has frequently exceeded Wall Street predictions more handily. In the three previous quarters, Yahoo’s profit bested analysts projections by 18% to 114%.
As a result, Yahoo shares fell to around $159 in after-hours trading from its official close of $165.56, down $1.81 for the day on Nasdaq.
“There may have been an unrealistic expectation for the company’s bottom-line performance,” said analyst Derek Brown of W.R. Hambrecht & Co. in San Francisco. “I thought it was a really strong quarter from top to bottom.”
Yahoo, based in Santa Clara, Calif., saw its quarterly revenue surge 120% from a year earlier to $228.4 million, more than $20 million higher than analysts had projected.
The company, which is best known for its directory of other Web sites and for its e-mail, news, shopping and other services, said that e-commerce transactions through Yahoo ads or services reached $1 billion in the first quarter, up from $700 million in the last three months of 1999.
Overall, the number of monthly unique users on Yahoo grew by 25 million in the first quarter to a record 145 million.
“Their operating performance is quite strong. They grew sequentially far greater than anyone thought they would,” said Scott Reamer, an analyst with S.G. Cowen Securities in New York.
Yahoo’s performance is often seen as an indicator of the health of the rest of the Internet sector, because it is among the oldest Net companies as well as the most popular and one of the few that are profitable.
Yahoo’s results were welcome news for investors, who have seen dot-com stocks whipsawed in the last two weeks as Wall Street strategists toned down their enthusiasm for high technology valuations, and for Internet and e-commerce firms specifically. Some major but money-losing e-commerce companies are running low on cash and may fold if they can’t raise more.
Yahoo’s stock has fallen about 22% from a high of $205 two weeks ago.
Despite that, Yahoo still trades at several hundred times its trailing 12 months of earnings, while most established companies trade at between 10 and 30 times profits.
The growth prospects for the Internet as a whole are strong, Yahoo Chief Executive Tim Koogle said in an interview, and “Yahoo is in a good position, because we’ve got a really broad geographic footprint. We get out in front of a lot of the growth in traffic worldwide.”
Koogle said Yahoo will continue to invest in e-commerce efforts and services aimed at broadband access and wireless devices.
He and other Yahoo executives, on a conference call with analysts, stressed that the company was interested in buying overseas companies but that no major purchase was planned in the U.S.
Instead of buying another Internet behemoth, Koogle said, Yahoo is best served by seeking alliances with firms eager to tap into Yahoo’s vast audience.
Because the first quarter is traditionally weak for Internet and other advertising-dependent companies, analysts said, Yahoo’s results show that the best-known firms will continue to thrive.
“This is one of the best models out there,” said S.G. Cowen’s Reamer. “You can understand why people would be skeptical about smaller ones.”
But even at Yahoo, the verdict is still out on long-term profit, said analyst Paul Noglows of Chase H&Q.;
“Yahoo’s ability to draw an audience is really unparalleled,” Noglows said. ‘The question is, how do you monetize that audience going forward?”
