Strong Earnings Lift Yahoo Stock Even Higher
NY Times, 7/9/98 By SAUL HANSELL
Yahoo Inc. reported second-quarter earnings Wednesday that were sharply higher than analysts' expectation. The results and the announcement of a 2-for-1 stock split sent Yahoo's already stratospheric stock price surging even higher.
Yahoo runs the most popular sites on the World Wide Web, and unlike most Internet companies it has begun to earn a small operating profit. In the last month, its share price has increased by more than 70 percent, giving the tiny company a market value of nearly $9 billion.
Other Internet companies have seen similar run-ups. Amazon.Com, for example, the money-losing online bookstore, now has a market value that is $5.3 billion more than that of Barnes & Noble and Borders Group, the two largest bookstore chains, combined.
On Wednesday, shares of Yahoo, which is based in Santa Clara, Calif., closed at $186.1875, down $4.8125, on the Nasdaq stock market. Yahoo released its earnings after the market's regular session; in after-hours trading, its shares rose as high as $202.
Excluding a one-time charge, Yahoo earned $8.1 million, or 15 cents a share, in the second quarter. Analysts had expected Yahoo to earn 9 cents a share. With the $44.1 million charge, related to its acquisition of Viaweb Inc., which runs web sites for small businesses, Yahoo lost $36 million in the second quarter. Revenue increased to $41.2 million, from $30.2 million in the first quarter and $14.1 million a year ago.
Analysts said Yahoo continued to show that it was among the strongest Internet companies, with its advertising income rising faster than its costs.
But Keith Benjamin, an analyst with BancAmerica Robertson Stephens, said that despite the good news, Yahoo's shares could well fall 10 percent to 20 percent in the next few months.
"This news perfectly supported the bullish case on Yahoo," Benjamin said. "But there was nothing that a rational person would see in this release that should make the stock go up." He said that using the most bullish assumptions, he could not justify a price of more than $150 a share.
Much of the activity in Yahoo's stock has come from small investors, analysts said, as larger institutional investors have been afraid to commit to the stock at these prices. The stock split, effective Aug. 3, is likely to encourage retail investors by making it easier to buy shares.
(In recent weeks, several other Internet companies, including Lycos and Excite, announced stock splits, prompting their shares to jump.)
Another force pushing up the price of the stock, analysts said, is the admission of defeat by investors who bet that Yahoo's stock would fall by selling its shares short.
In a short sale, an investor sells borrowed shares, hoping to buy them later at a lower price. If the stock price then goes up, as Yahoo's has, the short seller has to live with the prospect of increasing pain or buy back the stock at a loss. This buying back often drives prices higher.
In what could be seen as an endorsement of its high valuation, Yahoo also said Wednesday that it had sold $250 million worth of stock to the Softbank Corp. of Japan at about $183 a share. The deal increases the stake of Softbank, already Yahoo's largest shareholder, from 29 percent to 31 percent.
The company said it wanted the extra cash as a reserve to use for potential acquisitions or other expansions, but it said none were planed yet. If the company does not spend the money, analysts said, the interest alone will increase its earnings by about 10 percent.
Yahoo said it did not plan major expenditures on television ads or other marketing efforts to counter the increased exposure that two of its competitors will receive as part of recent linkups with big media companies. General Electric's NBC unit has agreed to take a controlling interest in Snap, and the Walt Disney Co. took a 43 percent stake in the Infoseek Corp. Both deals involve substantial network TV promotion for the search services.
"We anticipate that the media companies will spend a lot of money and stir up the market," said Jeffrey Mallet, Yahoo's chief operating officer. "That will drive new users to the web, and if we do our job right we will get our share of them."
The rise in Yahoo's shares is forcing many traditional investors to rethink their long-held views about how to look at stock prices.
"None of the old ways of valuing companies make sense anymore," said Peter Tanous, the president of Lynx Investment Advisory, a money management consulting firm.
In some ways, he said, the Internet has all the hallmarks of past investment fads. "Forty years ago there was a frenzy about the miraculous effect of chlorophyll, then all the chlorophyll companies went bust," he said. "Then there was the same thing about bowling."
Yet Tanous conceded that there may be something to all the boasts that the Internet will really change the world. "I've got this lingering fear that the Internet stocks are for real. I just don't know what to do about it," he said.
|
