Yahoo!'s strong first-quarter earnings report drew rave reviews from analysts this week even though the 120-percent jump in sales didn't translate into a huge upside surprise on the bottom line.
In the quarter, Yahoo! raked in $63.2 million, or 10 cents a share, on sales of $228.4 million, up 120 percent from the $103.9 million in sales it recorded in the year-ago quarter.
First Call consensus expected the world's leading Internet portal to earn 9 cents a share.
Morgan Stanley Dean Witter analyst Mary Meeker raised her 2000 earning estimate to 44 cents a share from 38 cents a share following the report while boosting her revenue estimate 8 percent to $1.025 billion.
In a research note, Meeker said Yahoo!'s "key metrics were awesome, again," noting the increase in its user base, number of unique visitors and daily page views.
In March, Yahoo! recorded 145 million unique users, including 14 million users in Japan. Its global registration base grew to more than 125 million cumulative registrations for Yahoo! member services.
Total traffic soared to 625 million page views per day on average during March, compared to an average of 465 million page views per day in December.
Yahoo! Japan's traffic, which is included in these page view totals, increased to more than 65 million page views per day during March from more than 39 million per day in December.
Merrill Lynch analyst Henry Blodget underestimated Yahoo!'s prowess this quarter, predicting total sales of around $205 million and only a 9 percent improvement in page views to 505 million
Chase H&Q's Paul Noglows also reiterated his "buy" rating on the stock while bumping his fiscal 2000 earnings estimate to 45 cents a share from 38 cents a share and upping his fiscal 2001 estimate from 49 cents a share to 56 cents.
Noglows was particularly impressed with Yahoo!'s strong traffic growth and better-than-expected sales, especially since the first quarter is traditionally the slowest revenue quarter for media companies.
Despite all the positive comments, Yahoo! shares fell more than $11 a share in Thursday trading before recouping around $4 a share Friday.
"Our technicians have noticed a pattern of Yahoo! pulling back immediately following their results," said Patrick Wilton, an analyst at E-Offering. "I guess it's a case of people selling on the news even when it's good news."
Yahoo! has a history of pulling back after posting excellent quarterly results, but this time there's concern about the departure of CFO Gary Valenzuela and shrinking operating margins.
Susan Decker, the former Global Head of Research at Donaldson, Lufkin & Jenrette will replace Valenzuela, 43, as the company's head bean counter.
Valenzuela will retire and July and work closely with Decker through this transition period.
CS First Boston's Lise Buyer said that while Decker may prove equally strong, her lack of experience as a CFO "adds some incremental risk."
Buyer said Valenzuela had played a key role in building Yahoo!'s credibility on Wall Street.
However, she still raised her second-quarter estimate to 10 cents a share from 9 cents and lifted her fiscal 2000 estimate to 44 cents a share from 39 cents a share while reiterating a "buy" recommendation.
Donaldson, Lufkin & Jenrette's Jamie Kiggen matched Buyer's fiscal 2000 estimate, mostly likely in direct response to Valenzuela's assurance that Yahoo!'s expansion into other businesses would result in a 2 percent bump in operating margins.
The company's long-term model how assumes operating margins ranging between 32 and 38 percent, Valenzuela said.
Despite all the accolades, Merrill's Blodget warned that operating margins may slip a bit in the next few quarters.
"The company did not show as much operating leverage as expected," he said in a research note. "Flat gross margin suggests that the cost of streamed media, which will become increasingly important in the future, is less leverageable than that of static content. As a result, we believe near-term operating margin improvement may be slower than in the past."
Blodget gave the company an A-minus grade for the quarter, saying the stock could trade sideways through the summer before ending the year at around $250 a share.
Its shares soared to a 52-week high of 250 1/16 in January before announcing yet another 2-for-1 split in February.
Last quarter, Yahoo! earned $57.5 million, or 19 cents a share, on sales of $201 million.