Services & Software

Better-than-expected earnings boost Yahoo shares

The Internet bellwether gains 18 percent in the wake of its earnings report, which exceeded Wall Street's expectations and tempered concerns about a possible revenue slowdown.

Shares of Internet bellwether Yahoo surged today after the company posted financial earnings that exceeded Wall Street's expectations and tempered concerns about a possible revenue slowdown.

Yahoo jumped $19.44 to $124.94 by the close of regular trading a day after the company reported stronger-than-expected earnings. Other Net stocks are riding Yahoo's wave: was up 6 percent at $35.06, jumped 10 percent to $35.62, and Lycos gained 6 percent to $44.25. America Online rose 3 percent to $57.44.

The run-up comes after yesterday's sell-off, sparked by anticipation of Yahoo's earnings report. Yahoo's stock yesterday hit its calendar year low.

Investors were concerned that Yahoo's growth would slow in the coming months because of sagging advertising revenues. In an interview with CNET yesterday, Yahoo chief executive Tim Koogle said he believes there is "no reason to change" his company's focus following a strong earnings report that saw revenues more than double.

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

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

Perhaps the most-watched figure in the report was Yahoo's revenue, which soared to $270 million. That's a 110 percent increase from the $128.5 million in revenue during the same period last year.

"The bottom line is that we continue to believe that Yahoo will experience some impact from that dot-com shakeout but that it will emerge from the shakeout in a stronger competitive position than it had going in," Merrill Lynch Internet analyst Henry Blodget wrote in a note to investors today.

Yahoo's results have received considerable attention recently as a handful of Wall Street analysts questioned the company's growth potential. Analysts have predicted that Yahoo's revenue growth could slow as cash-strapped dot-coms tighten their advertising budgets.

Today several Wall Street analysts issued reports reiterating their support for the stock, while analysts such as Derek Brown of W.R. Hambrecht continued to express concern about the "weakness of the online advertising market." Brown maintained that the company will continue to see growth from other areas, such as the international arena.

Yahoo's Koogle said the company expects to see continued growth in Internet ad sales.

"Ad spending is strong and will continue to grow well," he said, citing third-party industry reports. "Among our client base, we've been focused on getting as diversified as possible and at qualifying our customers."

Chief financial officer Susan Decker said during a conference call that less than 10 percent of Yahoo's revenues come from "financially questionable clients."

Yahoo shares dipped as much as 8 percent yesterday after an influential Internet analyst said the company's spending would erode profit margins. Morgan Stanley Dean Witter analyst Mary Meeker said in a conference call to brokers that Yahoo's profits would be trimmed by its aggressive spending in developing wireless offerings.

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Koogle said that the company plans to invest in new businesses and continue to build its brand, expecting to maintain profit margins of between 32 percent and 38 percent.

"We don't anticipate any change in our margins," he said. "We expect we'll stay within the range, and in fact, we have so far consistently hit the top end of the range."

Koogle said Yahoo's new initiatives such as corporate and wireless portals are natural extensions of its current businesses and will incur only incremental costs.

Addressing concerns about the introduction of Yahoo FinanceVision, a business news channel that combines streaming media with Web browsing features, Koogle denied that the project shows Yahoo is departing from its primary role as a content aggregator to creating its own Web content.

"We are primarily a content aggregator," he said. "We're doing a good (job) at that and see no reason to change."

Just last week, Deutsche Banc Alex Brown analyst Andrea Williams Rice cut Yahoo's rating to "buy" from "strong buy," citing the ad spending slowdown. Market conditions and the loss of venture capital have been the main culprits, she wrote in her note to investors.

Last month, Merrill Lynch's Blodget also raised warning flags, predicting lower-than-expected revenue growth because of the sour market.