Yahoo! basks in post-earnings praise

Yahoo! shares rallied up 18 7/16, or 17 percent, to 123 15/16 Wednesday after it easily topped analysts' estimates in its second quarter. Several analysts either upgraded or reiterated their confidence in the stock.

In the quarter, Yahoo! (Nasdaq: YHOO) raked in $74 million, or 12 cents a share, on sales of $270 million.

First Call Corp. consensus expected it to earn 10 cents a share in the quarter.

The $270 million in sales marks a 110 percent jump from the year-ago quarter when it earned $27 million, or 5 cents a share, on sales of $128.6 million.

The impressive sales growth surprised analysts who were expecting total sales of between $221 million to $251 million.

On Wednesday, USB Piper Jaffray analyst Safa Rashtchy said the strength of the Yahoo! brand and platform created a "flight to quality" among advertisers in the second quarter.

"We are increasing our revenue estimates by an average of 5 percent for fiscal 2000 and fiscal 2001 but believe that sales can grow much faster even if Yahoo! only maintains its market share," Rashtchy said in research note. "We believe that faster-than-expected revenue growth and free cash flow, not the margins, will drive Yahoo!’s valuation.

Rashtchy reiterated his "strong buy" rating on the stock with a 12-month price target of between $180 to $200 a share.

Merrill Lynch's Henry Blodget said Yahoo!'s strong quarter assuaged some of the concern surrounding the stock in the wake of slower online advertising sales.

"We remain confident in Yahoo!'s competitive position and outlook," he said in a research note. "We believe our estimates remain conservative and we expect the company to continue to exceed them."

Thomas Weisel Partners upgraded the stock to a "strong buy" from a "buy" recommendation.

Although impressed by Yahoo!'s performance this quarter, WR Hambrecht's Derek Brown said the slowdown in online advertising spending would eventually take its toll on Yahoo!'s bottom line.

"We are maintaining our buy rating, but continue to moderate our stance based on continued softness in the online ad market as well as the company's rich valuation," he wrote in a research note.

Last quarter, Yahoo! topped analysts' estimates, earning $63.2 million, or 10 cents a share, on sales of $228.4 million.

After moving up to a 52-week high of 250 1/16 in February, the stock had slipped back to around $105 a share. It also split 2-for-1 in February.

Twenty-nine of the 33 analysts following the stock rate it either a "buy" or "strong buy."