Tech Industry

Yahoo traffic boosts profits

The Internet directory doubles Wall Street's pleasure by posting earnings that were twice as strong as expected.

Yahoo (YHOO) doubled Wall Street's pleasure today by posting earnings that were twice as strong as expected.

Net income for the first quarter was $4.3 million, or 8 cents per diluted share, compared with a loss of $740,000, or 2 cents a share, reported for the same quarter last year. During the fourth quarter, the company reported pro forma net income of $2.6 million, or 5 cents per diluted share, which excludes the one-time charge of $3.9 million incurred in connection with the company's acquisition of Four11.

Analysts were expecting profits of 4 cents a share, according to First Call.

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.

Today, Yahoo reported 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.

Yahoo's revenues for Internet advertising increased to $30.2 million for the quarter ended March 31, up about 200 percent from the $10.1 million reported for the same quarter a year ago. The first quarter typically is the softest for Net advertising. For the previous quarter, the Internet company reported revenue of $25.1 million.

Yahoo generated 77 percent of its revenue for the quarter from advertising, while 22 percent was directly related to commerce deals with transaction-based components, said chief operating officer Jeff Mallet. The vast majority of that commerce revenue is derived from placement fees, with a small percentage directly related to shared transaction revenue. The tiny remaining portion of overall revenue came from Yahoo Internet Life magazine and Yahoo gear.

"We have been diversifying the revenue streams since day one," Mallet said, citing partnerships and promotions, transaction fees, the Yahoo Visa card, and Yahoo Online powered by MCI, which launched in March.

Yahoo stock rallied today ahead of the earnings announcement to end at 97-1/4, up 4 from yesterday's close of 93-1/4.

"I don't feel uncomfortable [with the stock price]," Mallet said. "We continue to provide great value to our shareholders. We can't control it. We just execute, and as long as we run our business smartly, it is out of our control."

But Derek Brown, an analyst at Volpe Brown Whelan, said the company's valuation doesn't reflect enough risk. "It is an aggressive valuation for a young company in an emerging industry," he said.

Right now, Yahoo is trading at 35 times calendar 1998 revenue. That far exceeds the valuations of its peers. For example, Excite (XCIT) is trading at 8.5 times calendar 1998 revenue, while Lycos (LCOS) is trading at 13 times 1998 revenue.

Yahoo said its traffic increased to an average of 95 million page views per day last month, based on 30 million unique visitors. That compares to an average of 65 million page views per day in December. The company boasts more than 12 million unique registered users.

Those 12 million individuals reflect the number of people who have submitted personal data to Yahoo so that they can get personalized services--such as My Yahoo, Yahoo Mail, message boards, stock portfolios, and news--based on the information provided.