Jenna
the market may just ignore good eps, because of the forward look right now of a negative future earnings situation...slowing econ. and continued world wide trouble in other global markets...
here's a YHOO blurb...:>}
Silicon Valley
Oct 07, 1998
Silicon Valley: Yahoo! Kicks Off Net Earnings
Season
By Suzanne Galante
Staff Reporter
SAN FRANCISCO -- If history repeats itself, then Yahoo!'s (Nasdaq:YHOO - news) earnings -- due
tonight -- will be a harbinger for the rest of the Net set.
The largest free online service and search engine just can't seem to do anything wrong. Yahoo's
margins are increasing, along with earnings, traffic and registered users. And most analysts can't seem
to say enough positives about the most visited Web domain -- they aren't even waiting for the release
of earnings.
Yahoo is the first big Net company to report third-quarter results. Wall Street is expecting the company
to post profits of 9 cents a share, according to a consensus of analysts polled by First Call. A year
ago, Yahoo broke even on revenues of $18 million.
In the June quarter, Yahoo reported revenue of $41.2 million and profits of 8 cents per share, beating
expectations handily. Those strong results were the first sign that other Internet companies would also
surpass expectations. So all eyes will be focused on what Yahoo has to say about its growth in
registered users, traffic growth, ad sales and e-commerce revenues.
Even ahead of earnings, analysts are feeling bullish. Last week, Wheat First Union started coverage
of Yahoo with an outperform rating, Jefferies initiated coverage with a buy rating, and Bear Stearns
analyst Scott Ehrens raised the company to buy from neutral (none of these firms have underwriting
relationships with Yahoo).
The positive Bear Stearns report alone set off a mini-rally among Net stocks. Ehrens predicted that the
second half of 1998 will be "very strong," and he set a 12-month price target of 160, a 28% premium
over Yahoo's closing price yesterday of 124 13/16. Seem incredible? Not to Ehrens. "Yahoo's business
is outpacing the share price appreciation," he wrote in his three-page report. In addition, the fourth
quarter, which started Oct. 1, will be a "big e-commerce quarter for Yahoo." Until now, Yahoo CEO
Tim Koogle has cited advertising as the primary revenue driver -- so e-commerce would be a big
bonus to Yahoo revenues.
On the flip side, however, there are a handful of analysts who are cautious about the company's lofty
valuation. "On a fundamental basis, the company is in great shape and will report a very strong
quarter," said Paul Noglows, an analyst at Hambrecht & Quist, who downgraded the stock in July
based on valuation. (Noglows, a TSC columnist, has no underwriting connection with Yahoo.) "I just
don't feel comfortable putting people into the stock at these levels," he says. "The question becomes,
Should you be buying Yahoo at any price?" Nonetheless, he is expecting revenues of $45.6 million and
profits of 10 cents per share, slightly ahead of the consensus.
At its close yesterday, Yahoo had a market cap of about $11.7 billion -- nearly 45 times some analysts'
calendar 1999 revenue estimates of $265 million.
Chris Rahbany, an analyst at Chatfield Dean, initiated coverage of Yahoo on Sept. 23, with a
short-term reduce rating based on valuation. Yesterday he backed up that call: "No company," says
Rahbany, "is worth 300 times earnings."
Ehrens, however, believes that the company is close to a milestone, when revenue will truly be
diversified and commerce will contribute upwards of 10%. He says that warrants the higher price
target and says investors should be buying now. In addition, many premier merchant deals are
approaching renewal, and Yahoo will set up the deals to earn more in commissions than before.
Wall Street has encouraged ad-based companies like Yahoo to diversify their revenues, because online
advertising is cyclical at best. If today's earnings announcement shows that Yahoo has performed this
feat, it could be a big indicator that e-commerce has arrived. That would be good news for all Internet
companies, retailers and content companies, who are also hoping to spread the revenue across a few
different paths.
In June, Yahoo averaged 115 million daily page views. That was up from 95 million average daily page
views in March and from 38 million in June 1997.
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