Yahoo sits on $2 billion hoard
A cash trove, including a $750 million debt offering announced last week, bolsters the company's war chest for possible acquisitions, analysts say.
Priming the once-beleaguered Web portal's wallet have been four successive quarters of profits and a favorable $750 million interest-free loan announced last week. Analysts said the debt deal would allow Yahoo to continue on a buying spree that has so far brought search engine Inktomi and employment site Hot Jobs into the company fold.
"It's an instrument to help them better negotiate with potential targets, and it certainly gives them a lot more flexibility," said Youssef Squali, an analyst at First Albany.
Yahoo on Wednesday reported a first quarter profit of $46.7 million on $282.9 million in revenue, beating Wall Street analysts' expectations. Yahoo also said its free cash flow for 2003 will reach between $295 million and $325 million.
More cash in the bank opens more doors of opportunity. Still, the timing of the debt deal appears to owe more to circumstance than to any premeditated acquisition plan, according to Jeffrey Fieler, an analyst at Bear Stearns.
The terms of the deal were extraordinarily attractive, effectively offering Yahoo free money for five years. Even if the money were invested in cash, it could produce a significant return over the period of the loan. In addition, the loan can be converted to Yahoo stock at $41 a share, at the company's option.
"Did they know what they'd plan to do with (the loan) the day they took it? My guess is no," Fieler said.
In an interview Wednesday, Yahoo CEO Terry Semel said Yahoo's having roughly $2 billion in cash does not mean that it will be put to any immediate use. Rather, Yahoo will continue managing the cash in a way that keeps all of its options open, to strengthen the company's financial and strategic position.
"We've managed it carefully, we've been prudent," Semel said. "At times we made acquisitions, at times we bought back our own stock, (and) at other times we looked to properly manage the money to receive a good return."
Still, Semel's track record of acquisitions thus far has fully exploited Yahoo's cash reserves, which has hovered at around $1.5 billion since he joined in May 2001. Last December, Yahoo acquired search technology company Inktomi for $235 million in cash. Inktomi is expected to replace Google in providing algorithmic search results on Yahoo's search page and is expected to bring in paid-search revenue as well.
In December 2001, Yahoo acquired online job search site HotJobs for $436 million in cash and stock. The company now accounts for most of its parent's listings revenue, which came in at $29.3 million in revenue this past quarter.