Yahoo reaps rewards of profit

Yahoo shares are soaring after the company surprised Wall Street by turning a profit.

CNET News staff
3 min read
Yahoo (YHOO) stock is up 4-1/2 from yesterday after the company surprised Wall Street and the high-tech industry yesterday by turning a profit much earlier than expected.

The shares got a jolt to close at 25-3/ 8, up 4-1/ 2 from yesterday's close at 20-7/8.

After two consecutive quarters of losses, Yahoo announced profits of $96,000 for the fourth quarter ending December 31, nearly identical to what the company reported a year ago.

But as the young company rapidly expanded and posted million dollar losses over two consecutive quarters, analysts had expected more of the same this quarter with an estimated loss of 5 cents per share. Most analysts didn't expect Yahoo to see a profit, even a tiny one, until later this year.

"They had a tremendous quarter and blew away everyone's estimates," said Paul Noglows, an analyst with Hambrecht & Quist. "They beat expectations by growing traffic and advertising on their site. Part of the trend in Internet advertising is advertisers are gravitating to the top sites, so the rich get richer."

Revenues reached $8.5 million for the quarter, up more than eightfold from a year ago and more than twice the revenue it posted in the previous three-month period. For the fiscal year, Yahoo reported revenues of $19 million and a net loss of $2.3 million, or 9 cents a share.

"It really came down to advertising exceeding our expectations and managing our expenses close to plan levels," said Gary Valenzuela, chief financial officer. The company had previously expected sustained profitability in 1998 but was uncertain whether it would achieve that goal this year. "We have more work to do before we can declare a level of sustained profitability [in 1997]," Valenzuela said.

Like competitors Excite, Infoseek, and Lycos, the search engine company is free to use, receiving revenues from advertisements. Yahoo's base of advertisers increased to 550 in the fourth quarter, up from 340 in the previous three months.

Yahoo also launched a massive expansion plan this year by rolling out overseas sites from Ireland to Japan and local sites in six major U.S. cities. The investment seems to paying off; the company said its traffic increased to an average of more than 20 million page views a day in December from 15 million in September.

Yahoo Japan contributed a substantial amount of those new page turns. This site, which includes content and language specific to that country, had an average of 1.4 million page views daily in December, up from 1 million in September.

The company also launched "Yahoo Get Local," a new service that provides users with local resources for more than 30,000 U.S. cities.

But Noglows noted that although these new sites are contributing incremental revenue to Yahoo, it's the company's flagship site that has captured the growth.

During 1997, the company plans to continue investing heavily in overseas expansion, rather than focusing on shorter-term profits.

Tim Koogle, chief executive, said in a statement: "We believe such investments are critical to sustaining our momentum and leadership position in this highly competitive and dynamic market."