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Yahoo beats expectations

Yahoo nets better-than-expected results for the third quarter, the result of increased traffic and a round of e-commerce deals.

Yahoo (YHOO) topped off an eventful day today with better-than-expected results for the third quarter, as traffic increased and the company made a round of e-commerce deals.

The company reported profits of 3 cents a share, Engines firing up while analysts had expected earnings of 1 cent per share, according to First Call. For the same quarter a year ago, the company reported a loss of 3 cents a share.

The company has beaten Wall Street's estimates several quarters in a row.

Yahoo's revenue grew to $17.3 million, up from $5.5 million for the same quarter a year ago.

Jeff Mallett, senior vice president of business operations, said the new programming and distribution deals, along with more advertisers and higher CPMs, all contributed to the positive financial results. Yahoo broke 1,200 advertisers during the quarter and 80-plus percent of those advertisers were consumer accounts. "That is a good trend," Mallett said. "We got a large portion of their dollars."

While the company did beat expectations, analysts are not concerned with that end of the financial spectrum just yet.

"These are not earnings stories yet. We are looking at revenue momentum. This company is investing in brand and user loyalty today, and we can start to look for profits in a two- or so year time frame," said Shaun Andrikopoulos, an analyst at BT Alex Brown. "It is expensive to build brand, but now is the time to be doing that."

The company's stock, which more than doubled Yahoo at a glance during the quarter, gained even further ground today, closing at 56-3/4, up 1 point, with over 2 million shares trading hands. Fueling the stock today were a spate of deal announcements by Yahoo.

Yahoo today announced the acquisition of Four11 for $92 million in stock See related story. The company will take a fourth-quarter charge of $4 million as a result of the buyout, and will issue 1.65 million shares of Yahoo stock to conclude it. Yahoo hopes to complete the deal during the fourth quarter.

"Yahoo is no longer just a navigation and aggregation site. It is a destination," said Andrikopoulos. "The trick is to figure out how to keep eyeballs at your service and the acquisition of Four11 gets them one step closer to being an all-in-one destination."

"Traffic grew 31 percent from the June quarter and that is huge. The traffic is needed to sell to advertising and partnerships. We will see more of these hybrid advertising deals. They will be the future of electronic commerce," he added.

In addition, the company recently launched Yahoo Mail, a free email service for Internet users based on Four11's popular RocketMail technology.

And the navigational company today also announced an expansion of its distribution efforts through agreements with Compaq Computer (CPQ) and Gateway 2000 (GTW).

Yahoo said its deals with Gateway and Compaq deliver access to Yahoo services directly from users' desktops, given that they have integrated a Gateway- or Compaq-customized version of Microsoft's Internet Explorer 4.0. My Yahoo, Yahoo Search, and the My Yahoo News Ticker all are available through new Gateway computers beginning in the fourth quarter 1997.

The company also has deals with Microsoft (MSFT) and WebTV.

"In a relatively short period of time, about two or three years, there will be three or four global brands on the Web, and we are going to be one of those," said Mallett. "But in order to do that, we have to continue building up the base."

So Yahoo will stay true to its original commitment to get users the content that they want, and will continue to host and add content services, such as yellow pages, classifieds, chat, and email. However, Yahoo will not cross the line and get into original content production, Mallett said.

And more deals and alliances are on the way, but Yahoo will be selective.

"Strategically, we could rent out a ton of space, but we don't want those short-term gains," Mallett said. "We want branded, well-known merchants because we don't want to provide services that users are not interested in. That is short-sighted. We want to concentrate on context."

That means, for example, that users looking for Web sites about hiking in the Sierra Mountains will be presented with book titles about that topic along with the search results. Users will have a direct link to buy those books at the Web site through its deal with Yahoo.

Yahoo said its traffic grew to an average of 50 million page views per day during the month of September 1997, compared with an average of 38 million page views per day reported in June. Yahoo Japan, which is included in the above page-view totals, increased to more than 4 million page views per day in September, compared with more than 3 million page views per day during June.

"We continued adding key new community and electronic commerce services and expanding distribution, further enhancing our comprehensive network of properties and services," Tim Koogle, Yahoo's president and CEO, said in a statement. "We will continue to place a higher priority on investing in building the Yahoo services and brand on a global basis than on delivering short-term profits in this competitive market environment."

Among Yahoo's expanded e-commerce developments during the quarter are the Visa Shopping Guide by Yahoo, an agreement with CDnow to provide Yahoo Users direct links to related CDnow music products. The company also launched Yahoo Korea and Yahoo Australia & NZ during the quarter.

But regardless of its expansion efforts and better-than-expected performance, the company was downgraded today by Everen Securities to "near-term underperform" from "market performer."