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Yahoo earnings ignite tech rally

The portal giant's better-than-expected earnings news sends several technology stocks for a rocket ride as indexes climb higher.

Yahoo's better-than-expected earnings news sent several technology stocks sharply higher today.

The Nasdaq composite index climbed 143.16, or nearly 4 percent, to 4,099.58. The Standard & Poor's 500 index gained 12.04 to 1,492.92. And the Dow Jones industrial average rose 56.57 to 10,783.76, led by J.P. Morgan, which rose $4.63 to $122.56.

At the end of regular trading, gained $1.94 to $35.06, and shares of eBay jumped $8.69, or nearly 20 percent, to $52.63. America Online gained $1.50 to $57.50, while shares climbed $3.13, or almost 10 percent, to $35.63.

"Yahoo was beaten up over the last few sessions, but coming out above market (earnings) expectations helped bail out the markets today," Thompson Financial Securities market strategist Richard Peterson said.

Peterson expects the markets will hear more good news in the next few weeks. He compares the timing of unfavorable earnings releases to the speedy removal of a Band-Aid from an injury. "Firms want to rip it out fast and get the news out quickly," he said. "Now that it's July, we'll probably be hearing more good news," since the major negative news has hopefully done its course through the markets.

Safa Rashtchy, a financial analyst at US Bancorp Piper Jaffray, said that while Yahoo's strong earnings report certainly bodes well for the sluggish Internet sector, the rally was also fueled by the possibility that other companies in the market will post earnings surprises.

"It's not just Yahoo's earnings that are pulling up (Net) stocks today," said Rashtchy, who holds a "strong buy" rating on Yahoo's stock. "Yahoo earnings are especially relevant because even though the industry wasn't growing fast, Yahoo was able to make more money than people thought they would...This might be an indication that" other online giants, like eBay and AOL, will do better as well, he said.

Yahoo released its earnings report after the markets closed yesterday.

Its stock rose $ 19.44, or nearly 20 percent, to $124.94 today. Volume surpassed 37 million shares, about four times the stock's average daily volume of 9.1 million shares, making it the most actively traded stock on the Nasdaq.

Yahoo shares fell to as low as $105.50 this week as investors grew concerned that the company's second-quarter revenues could suffer because of a drop-off in advertising from cash-strapped dot-coms.

However, the Internet portal and search giant reported net income of $74 million, or 12 cents a share, for the period that ended June 30. In comparison, Yahoo earned $27 million, or 5 cents a share, for the same period last year.

Learn more about Yahoo's second-quarter earnings on

Saturday and Sunday, July 15 and July 16, 4 to 5 p.m. ET on CNBC

Wall Street expected the company to earn 10 cents a share during the second quarter, the consensus estimate of 29 analysts surveyed by First Call. The per-share earnings also exceeded so-called whisper numbers of 11 cents per share.

The company's strong sales performance allayed Wall Street's fears of sagging advertising on the Net. Yahoo's revenue soared to $270 million, a 110 percent increase from the $128.5 million in revenue during the same period last year.

"The Internet sector going into these earnings was terrible," analyst Scott Reamer of SG Cowen said. "Most stocks were aggressively hurt. For the most part, this is a short-term rally for other Net stocks, but not for Yahoo."

Reamer added that it's too soon to get a read on the overall health of the sector until some other companies report earnings, notably DoubleClick, Amazon and eBay.

Yet some analysts are quite optimistic.

"The Yahoo results provide an indicator for leading advertising-based Internet companies," Derek Brown, an analyst at WR Hambrecht who covers Yahoo, said. "Yahoo had a very strong quarter...It's likely that the trends that Yahoo saw in the quarter are being seen in other leading companies."

But Brown does not believe a rising tide will lift the fortunes of all Internet companies. Brown noted that that "second- or third-tier advertising-based companies and single-product, single-solution commerce companies," such as those that sell a narrow line of products to limited markets, may not survive.

He added that "other companies whose business plans never made sense regardless of whether they were in the first or second tier" will probably meet an early demise.

The CNET tech index rose 76.72 to 2,852.78, with 77 of the 96 stocks tracked rising, 17 falling and two remaining unchanged.

Of the 18 sectors tracked, e-tailers and Internet services companies posted the sharpest gains, climbing 9 percent and nearly 8 percent, respectively. Communications services companies were the day's biggest losers, dropping 0.52 percent.

Among members of the CNET tech index, CMGI, Qualcomm, RealNetworks and Exodus posted large gains.

Qualcomm rose $8, or 15 percent, to $61. RealNetworks climbed $7.81, or 20 percent, to $46.75. Exodus Communications appreciated $4.94, or 13 percent, to $41.94.

CMGI jumped $6.94, or 19 percent, to $43.44. Compaq Computer sold the Internet incubator a 49 percent stake in a recently created unit that provides employee Web sites to big companies. Compaq shares rose $1.25 to $26.75.

Shares of CNET Networks, publisher of, gained $7.75, or 36 percent, to $29.19.

A merger of two chipmakers caused some gains in the semiconductor sector. Shares of Quantum Effect Devices rose $18.25, or 30 percent, to $78.75 after chipmaker PMC-Sierra announced that it will purchase the company for $2.3 billion in stock. About 807,200 Quantum Effect Devices shares exchanged hands, more than nine times the stock's average of 89,400. PMC also rose $11.63 to $208.06.

The Philadelphia semiconductor index gained 36.72, or 3 percent, to 1,158.77, led by chipmaker Motoroal, which rose $2.44 to $36.

Investors gave shares of Intermedia Communications an extended workout as the shares closed up 75 cents at $24.13 on volume of 20.7 million, about 20 times more than the stock's daily average of 1.7 million shares.

Intermedia said it expects revenue will be 10 percent to 15 percent lower than analysts' expectations for the second quarter and the full fiscal year. The company now forecasts revenue of $245 million to $247 million for the second quarter.

Intermedia is a competitive local exchange carrier (CLEC) that competes with Baby Bells to provide local telephone service. Under the Telecommunications Act of 1996, Baby Bells must open their phone lines to CLECs to provide more competition in local telephone markets.

The company pinned its financial woes on disputes with BellSouth, which has refused to pay $100 million for calls handled by Intermedia.

"BellSouth, through discriminatory treatment and predatory actions, has negatively impacted Intermedia on a number of levels, and as a result, we are filing an antitrust lawsuit seeking substantial damages," said Robert Manning, Intermedia's CFO. BellSouth shares fell 31 cents to $40.94.