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Yahoo running with the bulls

Yahoo charges into record territory--again.

Yahoo (YHOO) is running with the bulls as it charges today into record territory--again.

The navigational company's stock hit 94-1/4 in early trading, and ended the day at a record closing price of 93-1/16, up 2-7/16 from Friday's close of 90-5/8.

Yahoo has been undergoing a metamorphosis to become a portal to the Web, rather than just a place to search for other information. It has bolstered its features and services, and has added personalization and community in an attempt to bring users back to the site again and again. The development of Yahoo's brand illustrates a long-term trend whereby efforts to expand beyond search engines are taking hold with investors.

Yahoo has seen its stock appreciate 470 percent during the past year to reach today's high of 94-1/4, up from its 52-week low of 16-1/2. It has jumped 42 percent so far this year, as investors redistributed their high-tech assets after some computer companies and chipmakers said they would miss expectations. Navigation companies such as Yahoo also have benefited from the rise in use of Internet access technologies, such as WebTV and cable modems.

Yahoo's rise in particular is related to high investor expectations of the company's upcoming quarterly results, said Paul Noglows, a digital media analyst at Hambrecht & Quist.

Those expectations are high for good reason. Indeed, the company has yet to disappoint Wall Street. Rather, it has come in ahead of expectations every quarter for more than a year. The young company even turned profitable earlier than expected.

Analysts are expecting profits of 5 cents a share for the March quarter, level with the December quarter's results. Last quarter, the company reported profits of 5 cents a share, beating expectations of 3 cents per share.

In the September quarter, the same held true, as the company reported profits of 3 cents a share, ahead of expectations of 1 cent per share. In the June quarter, the search leader reported profits of 2 cents per share, when the Street had expected a loss of 1 cent a share. In the December quarter of 1996, Yahoo announced profits of $96,000, when analysts had expected losses of 5 cents per share. Most analysts didn't expect Yahoo to see a profit, even a tiny one, until later in 1997.

In days following those better-than-expected results, Yahoo's stock retreated somewhat, after being boosted up on anticipation.

Yahoo stock gained about 11 percent in the days leading up to the release of its third-quarter results last September, and then promptly lost 15 percent during the week that followed. The same held true for the December quarter, when the stock gained about 6 percent before the earnings, and then lost 13 percent during the following week.

Some, however, say that Yahoo's stock movement is based on strong fundamentals and a growing business, not just on heightened expectations.

"People aren't buying Yahoo to play on the current quarter, but more out of recognition that its leadership for traffic and usage levels is unduplicated by all other portals [to the Web]," said Tim Albright, an analyst with Cowen and Company.

Yahoo's competition, like Excite (XCIT), Lycos (LCOS), and Infoseek (SEEK), continue to increase their traffic as well.

"It is a rising tide lifting all ships," said Albright.

But Yahoo also has grown its revenue every quarter.

In the December quarter, the company reported revenue of $25.1 million, up nearly 200 percent from the $8.6 million reported in the December quarter of 1996.

Yahoo generates revenue primarily through the sale of banner advertisements, but in 1997, it received additional revenues from electronic commerce transactions, although not significant in amount. During 1997, about 2,600 customers advertised on Yahoo properties.

"[The first quarter] is a weak quarter for Internet advertising-based businesses and Internet retailing, both of which are components of Yahoo's revenue model," said Albright, because the first quarter is the seasonally slowest quarter for advertising spending.