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Yahoo up, Net stocks follow

Shares in Yahoo jump 18 percent to a new 52-week high, and the run-up sparks a rally in other Internet stocks.

3 min read
Yahoo (YHOO) has walked the walk: News of its better-than-expected profits rippled through Wall Street as the Internet search company gave hope to other Internet stocks that are still deep in the red.

Shares in Yahoo jumped 18 percent to a new 52-week high--a day after the company posted quarterly results that were double what analysts had expected--and the run-up sparked a rally in other Internet stocks. Yahoo shares climbed to 114-1/2, up 17-3/4 points from yesterday's close of 97-1/4.

Excite (XCIT) and Lycos (LCOS) also climbed into record territory, with Excite gaining 8-3/4 to end at 62-1/4 and Lycos gaining 10 percent to end at 64-5/8.

"[These strong gains] show hope and optimism that the others can [make profits] too," said Lise Buyer, an Internet analyst at DMG Technology Group. "The market is euphoric at the moment. More people are using the Net, and people are hoping that Yahoo's results are a industry trend."

Other Internet issues, such as Amazon.com (AMZN), America Online (AOL), and Preview Travel (PTVL), also showed strong inclines.

"Many who had concerns about valuation are tossing in the towel and jumping in, almost against their historical better judgment," said Buyer.

Yahoo's stock traded as high as 114-3/4 today, and as low as 16-1/2 during the past 52 weeks. Last week, Yahoo cracked the $100-per-share barrier, joining AOL in this exclusive club among Internet stocks.

Morgan Stanley Dean Witter today initiated coverage of Yahoo with an "outperform," while BT Alex. Brown analyst Shaun Andrikopoulos raised his rating on the stock to "strong buy." Other analysts also raised their ratings on Yahoo.

Long-term upside potential outweighs current valuation concerns, Andrikopoulos said in a research note.

Yesterday, Yahoo was trading at 30 times 1998 revenue, while Excite traded at 8.5 times calendar 1998 revenue and Lycos traded at 13 times 1998 revenue.

Today's strong gains are an indication that investors are not too concerned about those high valuations right now, according to Buyer.

One might still be stunned by Yahoo's current valuation of $5.3 billion, as of yesterday's close, but relative to other successful media companies, one might take the perspective that the valuation is still low, based on our belief that the Web is now a mass market, BancAmerica Robertson Stephens analyst Keith Benjamin said in a research note.

"Yahoo's current audience level matches or exceeds many major media companies, which have market capitalizations that are multiple times Yahoo's," he added.

Benjamin increased his 1998 to 2000 earnings estimates on Yahoo and raised his price target on the company to $115, based on 50 times the 2001 earnings estimate.

"We believe Yahoo's March quarter report provides a positive preview for the group," he said.

The sharp run-up in Yahoo's stock has come to symbolize the promise of Net stocks--and of the huge returns they can bring shareholders. It also is a reminder that Wall Street will reward Net companies if they can manage to turn a profit.

With stellar gains, Internet companies have watched their stocks fly past other technology issues recently. The sector in general is reaping the benefits of a growing online population, fueled in part by low-cost personal computers, as well as by general protection from economic concerns in Asia.

In reporting its earnings, Yahoo also disclosed a jump in traffic and registered users. Those registered users are a gold mine for companies trying to become a "portal" to the Web, because personalized pages are expected to keep users coming back again and again.

As reported, net income for the Net directory's first quarter was $4.3 million, or 8 cents per share, compared with a loss of $740,000, or 2 cents a share, for the like quarter a year ago. Analysts were expecting profits of 4 cents a share, according to First Call.

Other Internet companies reporting next week include SportsLine (SPLN), Preview Travel, and Excite.

Jeff Pelline contributed to this report.