A new financial report provides a detailed look at multifaceted strategies planned by the front-running portal, which intends to strike a deal for broadband distribution by the second half of this year. The company also expects to expand its repertoire of Web tool and e-commerce offerings by exploiting its buyout of GeoCities and is considering charging fees for distribution of content to handhelds and other devices.
The report, written by Hambrecht & Quist analyst Paul Noglows, was prepared after Yahoo held its first on-site meeting for analysts yesterday at its headquarters in Santa Clara, California.
The presentation was apparently well received: Although it went public three years ago--an eternity in Internet time--Yahoo can look forward to a long, prosperous life ahead, according to some analysts who attended. Several have reiterated positive views of the company, despite intense and mounting competition and Yahoo's sky-high valuation.
Noglows raised his rating of the company to "buy" from "hold." Dain Rauscher Wessels, Credit Suisse First Boston, and Donaldson, Lufkin & Jenrette analysts reiterated their "buy" ratings, and Brown Brothers Harriman & Company reiterated its short-term and long-term "buy" ratings, according to the Bloomberg reporting service.
"If you ever wanted proof that Internet years are like dog years, now you have it," Noglows wrote of Yahoo's explosive growth.
"The company is more focused and more disciplined than ever before," said another analyst who attended the briefing but declined to be named.
"While valuation is still a significant concern, management presentations made at H&Q's Planet.Wall.Street Internet conference and Yahoo's first analyst day have convinced us that Yahoo is better positioned than ever before to capitalize on a broadening range of opportunities in the Internet space and thus more fully support over the long term the heady valuations put on its stock," Noglows wrote in his report.
The meeting took place during a tumultuous period for Yahoo and its established competitors in the portal space. More shareholders are suing Lycos over its pending acquisition by USA Networks, the Go Network and other new-wave "destination" sites are creeping into top traffic lists put out by companies such as Media Metrix, and specialty portals or "hubs" such as those devoted to the Linux operating system and another for music fans are launching.
In short, the marketplace for sites that aim to be users' home page is growing fast and evolving away from the massive content aggregation-plus-services model that Yahoo made famous.
Undaunted, Yahoo seems confident of its strengths and plans to move ahead.
"The meeting helped us better appreciate the types of services that Yahoo is developing to transform itself from a portal to a network," BancBoston Robertson Stephens analyst Keith Benjamin wrote in an email dispatch today.
"With a reach of more than 50 million global users, international growth is just beginning, with Yahoo developing local language content and services in more markets. We believe the challenge is how to capture more time and economic value from each person," he added.
According to Noglows, among the plans Yahoo outlined for analysts are as follows:
New revenue streams. "Yahoo is developing a new direct marketing service, attacking a $162 billion traditional direct marketing industry," Noglows wrote.
"Yahoo is also cautiously pursuing opportunities for subscription fees and paid premium services," he continued. "Expect Yahoo over time to layer on new fees for other premium services, including high-end stock and financial information, auction listings (mirroring eBay's auction charges), and technical services for power computer users."
In a recent interview with CNET News.com, Yahoo president Jeff Mallet said the company was looking into but wary of charging fees.
"If we can do a free service, that is our goal. We'll do everything within our powers to create a free service when people come to Yahoo," Mallet said. "The good thing is we get this critical mass and it gives us greater leverage. It allows us to carry stuff that may have been paid before and not even available before. That is our goal.
"Do we think over time, as we have 35 million registered users, that we have the ability to do subscription basis? You bet," he added.
Acquisitions. GeoCities may be the first in a series of high-profile purchases. That deal also may signal the beginning of a multibrand strategy.
"For the first time, Yahoo will own and invest in a brand other than Yahoo," Noglows wrote. "Company management made a point of saying that they expect to do more of this. They believe that now, for the first time, the Yahoo brand is strong enough to exist side by side with other brands."
GeoCities also presents greater e-commerce potential for Yahoo. "If you look at the GeoCities last few hundred thousand, almost a million new people coming in and publishing home pages, they have a business component to it," Mallet said recently. "So we see it as a good platform to drive new stores."
Analyst Benjamin wrote: "Yahoo has already achieved that status of being a global branded network, providing users guidance on where to find practically anything on the Web. In addition, Yahoo allows users to connect to a large community, an opportunity which is significantly enhanced by its pending GeoCities acquisition.
"We expect the integration of GeoCities will facilitate commerce at Yahoo by generating leads to Yahoo's partnered stores. We expect the GeoCities acquisition to close in the next two to three months," he added.
GeoCities' Web publishing tools also will give Yahoo more room to upgrade the applications it is offering, such as tax software and calendaring, said the analyst who asked not to be named.
"GeoCities' publishing tools will give [Yahoo] a leg up in that capacity," the analyst said.
A forthcoming broadband deal. "Yahoo has yet to strike a distribution deal with a broadband service," Noglows wrote. "Expect this to change, however. Yahoo management suggested that they intend to strike a broadband distribution deal by the second half of this year."
More moves on the international front. Yahoo has an "aggressive strategy" for attracting users overseas, "with localized versions in 18 countries featuring local language content and local site directories maintained by local staff," Noglows wrote.
"Yet Yahoo's international ambitions are large," he added. "The company is aiming, so far with success, to attract more than half of the surfers in the countries it enters. That puts it in an excellent position to participate in the emerging market for Web advertising and e-commerce overseas."
Amid such planning, Yahoo is undertaking a number of public changes. Just this week the company said it might join America Online's fight to open up cable Net access, signaling a more proactive broadband strategy. Yesterday's deal with PageNet shows Yahoo has its eye on the wireless world.
Benjamin pointed to Yahoo Shopping as a place with room for improvement. "The Yahoo Shopping brand does not seem to have the aura of quality that AOL has achieved by using high rents to screen out weaker tenants," he wrote.
"The functional focus seems to remain price, providing a listing of product availability, highlighting stores paying rent. The issue with this model is that it does not differentiate enough by quality of service, in our view.
"In contrast, Amazon.com and soon the new Lycos Network with [Barry Diller's Home Shopping Network] will have a competitive advantage with strong fulfillment capabilities," he added. "We expect Yahoo to be more selective over time with the stores that it more closely integrates into its channels."
Although yesterday's briefing was the first of its kind for the portal giant, spokeswoman Diane Hunt said there was no particular rationale behind the timing.
"We move so fast--we just haven't been able to do it before," she said. "We should have done it sooner. We won't wait another three years--we'd like to do it annually."
News.com's Jim Hu contributed to this report.