>>are you perhaps as intransigent vis-s-vis your 'sky's the limit' rosy scenario of Yahoo as the bears are with their imminent disaster scenario?
Sky's the limit? Did I say that? Yahoo completely virtuous? Did I say that? I don't think I did.
As far as forecasting Yahoo's model three years out, that's nearly impossible. The Street reacted in the wake of Q1 results to give Yahoo net margins of 19% in 1999, up from 14% this past quarter and single digits in 1997. That's an important concept, and points to Yahoo benefiting from the economics of increasing returns.
Revenue forecasts are really tough and the Street is being conservative. Morgan is estimating $151 million this year, $225 million next. Montgomery estimates $151 million this year, $229 million next. Both top-line estimates are counting on 50% revenue growth for 1999. Yeah, right.
The key problem is estimating commerce revenues...an area of accelerating growth. No one knows how high it's headed. Commerce revenues this quarter were $6.6 million (22% if total) up from $3.7 million (15% of total) last quarter, $2.2 million (12% of total) in 3Q97, and $.8 million (6% of total) in 2Q97. Commerce revenues are growing much faster than total revenues, and are still mostly impression-based. Over the next few years they will become more transaction-based, and the implied upside leverage is significant but impossible to foretell. The Street missed Q1 total revenues by only 22%, but operating income by a whopping 96% because commerce revenues component is growing so fast.
Commerce revenues carry higher margins, as evidenced by this quarter and most are recurring. For the Street to be talking 50% top-line growth 1999 vs 1998 is painfully conservative. That compares to new 1998 estimates of $151 million, up 256% from 1997.
Put all this in the hopper, and I think Yahoo can beat the Street by 60%-70% on the top line in 1999, and 100% or so on the bottom line, say $1.50. That would put the $121 stock at 80x next years number, a PE/G of less than 1.
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