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Yahoo! posts strong 2Q, remains confident about future

Yahoo! on Tuesday predictably topped analysts' estimates in its second quarter and said it's not worried about the decline of weaker Internet businesses.

After market close Tuesday, the Internet portal reported second quarter earnings of $74 million, or 12 cents a share, on sales of $270 million.

First Call Corp. consensus expected it to earn 10 cents a share in the quarter.

The $270 million in sales marks a 110 percent jump from the year-ago quarter when it earned $27 million, or 5 cents a share, on sales of $128.6 million.

Ahead of the earnings report, Yahoo! (Nasdaq: YHOO) shares closed off 4 1/2 to 105 1/2. In after-hours trading, the stock shot up to 112 3/4.

The impressive sales growth surprised analysts who were expecting total sales of between $221 million to $251 million, according to First Call Corp.

Including a variety of one-time charges, Yahoo! earned $65.5 million, or 11 cents a share, in the quarter.

"This quarter's better-than-expected financial results underscore the strength of our global franchise business," said CEO Tim Koogle in a prepared release. "We will continue to focus on key growth areas to maximize the inherent leverage and scale in our business to deliver the best services available on the Web."

Yahoo! recorded more than 156 million unique users during the quarter. The company is pleased with its revenue per unique user, which is "holding its own" in international markets, incoming CFO Susan Decker said, during a conference call with analysts.

"And it's rising in the U.S. as the economic yield from our customer relationships is deepening," said Decker, who is set to replace the outgoing Gary Valenzuela as chief financial officer.

The company's strong finances were expected, but many observers are worried that Yahoo! could be hurt as dot-coms go out of business. Yahoo! executives said their standard policy is not to disclose revenue stream by industry, but executives said they're not worried about the demise of weaker Internet businesses.

About 25 percent of Yahoo!'s business comes from business services and international advertising, Decker said, adding that those segments do not have "meaningful exposure" to Internet companies. Less than 10 percent of Yahoo!'s business comes from "financially questionable" customers, Decker said.

"As the industry rationalizes to fewer stronger participants, we feel good about our position," Decker said.

Yahoo! recorded 680 million page views a day in June compared to 625 million page views in March, including traffic at Yahoo! Japan. Yahoo! Japan accounted for 85 million daily views while Yahoo! Europe accounted for 33 million page views per day.

Company officials said it enabled over $1 billion in Web-based transactions through its network of sites, including its Japanese operations.

Last quarter, Yahoo! topped analysts' estimates, earning $63.2 million, or 10 cents a share, on sales of $228.4 million.

However, analysts were grumbling about Yahoo!'s margins of late, worried that deteriorating online advertising sales would crimp Yahoo!'s impressive growth.

Also, some analysts were concerned that its plans to expand its offerings for wireless devices would erode profit margins.

"There aren't as many people spending dollars to advertise like they were six or eight months ago," said Lise Buyer, an analyst at CS First Boston. "But for every dotcom that goes away there's another established company that will find a way to work with Yahoo!."

Following its first-quarter success, several analysts raised their fiscal 2000 earnings estimates while simultaneously expressing concerns about its operating margins.

Morgan Stanley Dean Witter analyst Mary Meeker raised her 2000 earning estimate to 44 cents a share from 38 cents a share following the report while boosting her revenue estimate 8 percent to $1.025 billion.

At the time, Meeker said Yahoo!'s "key metrics were awesome, again," noting the increase in its user base, number of unique visitors and daily page views.

"For 2000, we expect to see the stock move sideways through the summer and then rally to a new high at the end of the year," said Henry Blodget, an analyst at Merrill Lynch, in a research note. "Yahoo!'s core businesses appear strong and the company is successfully expanding into new arenas (wireless, devices, international). We continue to consider YHOO a core long-term holding."

Yahoo! shares clearly haven't been as proficient as they were just six months ago.

On Friday, Deutsche Banc Alex. Brown analyst Andrea Williams Rice cut the stock from a "strong buy" rating to a "buy" due to slower-than-expected revenue growth and valuation issues.

After moving up to a 52-week high of 250 1/16 in February, the stock has slipped back to around $117 a share. It also split 2-for-1 in February.

"I'd be startled if Yahoo! doesn't meet or beat the published estimate," Buyer said ahead of the earnings report.

Twenty-nine of the 33 analysts following the stock rate it either a "buy" or "strong buy."

-- Sergio G. Non contributed to this report.