Bill, first, you know as well as anyone that gross margins are not a particularly meaningful measure for this company. It is not a manufacturer, wholesaler or retailer. Throwing out an amazing sounding figure of "90%" serves no purpose other than hype.
Second, "net margins" have never been 22%. Operating margins in Q2, before the $44 million "non-recurring charge", were 22%, but that is a pretax figure and at some point they will have to start paying Uncle Sam. The 30%+ expectation is, likewise, the "operating" line and pretax and is padded by the charges they took last quarter. Besides, the consensus for 1999 of 46 cents per share comes to a NET margin of 21% on the most recent revenue projection I've seen. Pretax, that should equate to something north of 30% anyway, so wasn't some margin improvement already factored into the estimates?
Finally, justifying the business model - and I am not arguing they can't turn a profit, though competitive pressures may limit future growth - does not justify the valuation. On fully diluted shares, YHOO now has a market cap of almost $14 billion. This on a company expected to produce $150 million or so of revenue this year? That's 244 times forward earnings for a company that 18 analysts say will grow earnings at 58% for the next five years, for a *forward* PEG ratio of 4.2:1. And those estimates probably didn't assume that YHOO's "unique users" would be dropping or that YHOO may lose it's place as the leading ".com".
Bob
PS: Two more 144s filed on Monday. |
