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Yahoo beats earnings estimates

The portal giant reports fourth-quarter revenues of $76.4 million and announces a 2-for-1 stock split.

Yahoo today reported fourth-quarter 1998 earnings that beat Wall Street expectations.

The portal heavyweight reported net revenues of $76.41 million and net income of $25.043 million or 21 cents per share, beating Wall Street's estimates of 16 cents per share, according to First Call's consensus estimate from 24 analysts covering the company. Today's results mark a massive leap from the $26.584 million in net revenue reported for the same period last year.

The company also announced today that it would offer a 2-for-1 common stock split.

Yahoo's net revenues for 1998 were $203.27 million, or nearly triple the net revenues of $70.45 million reported for 1997.

The company's audience also has showed strong gains, reaching 167 million page views per day, up from 144 million in September. Yahoo also increased its loyal user base to 35 million.

In addition to the earnings news, some executives at Yahoo today received promotions. Tim Koogle, formerly president and chief executive, will become chief executive and chairman. Chief operating officer Jeff Mallett will also assume the role of president and will become a member of the firm's board of directors.

Yahoo cofounders Jerry Yang and David Filo will maintain their roles as "chief Yahoos." The two will continue to work on developing corporate business strategies and technological direction, respectively.

Earlier in the day, the company's share price fell as much as 11 percent on concern that the stock, along with shares of other Internet companies, may be overvalued, analysts said.

Yahoo, which has gained 75 percent so far this year, fell 13.375 points or 3.22 percent to close the day at 402, after dropping to 370 in earlier trading.

Shares in the Santa Clara, California-based firm dropped on concern that Internet stocks may have risen too far too quickly, said Bruce Smith, analyst with Jefferies & Company. Although Yahoo beat earnings expectations today and split its shares, those moves ultimately may be factored into the share price, Smith said.

"What is in the stock may be what people are expecting," said Smith, who has a "buy" rating on Yahoo shares.

Other analysts and industry observers view Yahoo's strong earnings results as an indication of the company's increasing brand power, as well as its ability to generate revenue through the heavy traffic it receives. They will be paying close attention to the company's e-commerce figures in order to assess the significance of those numbers in Yahoo's overall Web revenue picture, especially on the heels of a strong holiday e-commerce season.

According to Brown Brothers Harriman equity analyst Dawn Simon, today's earnings could indicate the growing potential for online companies to become profitable.

"Yahoo has demonstrated that it can make money," she said.

Simon added that the company's strong results this quarter also may spark increased general confidence among more traditional investors in the Internet space--which thus far has been marked by skyrocketing stock valuations in spite of untested business models.

"I think [Yahoo's earnings] give some investors some security, because you get revenue on the top line, and eventually make profits at the bottom line," said Simon. "It's something some investors find reassuring in the Internet space."

Today's earnings results were released against the backdrop of a recent stock frenzy that sent Internet stocks such as Yahoo and Lycos surging to all-time highs.

Yahoo's strong earnings report landed on the same day that Disney and Infoseek executives announced the official launch of the Go Network. Many expect Go to become a significant player in the portal space, given its incorporation of ABCNews.com-, ESPN-, and Disney-branded content channels--which already have significant audiences. In addition, Disney is expected to gear up its marketing engine to promote Go throughout Disney-owned properties, both online and off.

Responding to the competition, Yahoo is focusing on maintaining its presence on the Web by looking to different distribution channels and platforms for its services, from PCs to set-top boxes and handheld devices.

Yahoo chief operating officer Jeff Mallett, who is also the company's newly appointed president, would not rule out the possibility of tapping into a subscription-based revenue stream by partnering with new technology and access providers, such as wireless companies.

"You might see us being tacked on as a content provider for different devices and seeing us offered as an extended service," he said.

In addition, companies with deeper pockets--such as America Online and Microsoft--are posing a challenge to Yahoo's position in the portal space. This factor has prompted industry analysts to speculate over a possible takeover or equity investment scenario from a media company such as Time Warner or CBS.

Mallett said that Yahoo's relationship with media companies will, for now, remain on a content-distribution level--but not on a par with the Disney-Infoseek joint venture.

"It's not in our plans to hook up to that level with a media company," he said.

However, Mallett added that Yahoo was open to equity partnerships with other technology or communications firms. Speculation among industry analysts and observers that communications giant AT&T or software giant Microsoft is in talks to take a stake in a Web portal recently has intensified.

"We never rule it out," Mallett said.

He added, however, that an equity relationship was not a means to an end.

"We don't think it's essential at the end of 1999 to hook up to one of these big giants to be competitive," he said.

Bloomberg contributed to this report.