Yahoo! Inc. – 8 October 1998
3
Given the higher cash balance, Yahoo! generated net
interest income of $5.2 million versus $1.8 million last
quarter. (We would note that were we to flat line interest
income from the previous quarter, Yahoo! would have
reported earnings of $0.12 as opposed to $0.15 per share.)
Operating Highlights
During the quarter, Yahoo! made many enhancements to
the products and services available to Web users on its
network. The company continued its Web programming
expansion by launching Yahoo! Small Business, a
comprehensive online resource to help small businesses
and entrepreneurs, and Yahoo! Sports. In addition, the
company launched Yahoo! Lodging and Yahoo! Local,
which enables users to access information, book
reservations and purchase tickets for lodging and events.
Also during the quarter, the company added Yahoo!
Auctions (a person-to-person online auction service) to its
extensive list of merchant and shopping services. Yahoo!
introduced a new feature to Yahoo! Travel providing
shoppers the ability to comparison shop among various
vacation packages and cruises. Yahoo! Yellow Pages was
equipped with a new tool that provides users in-depth
information about each business including maps and
directions.
In addition, Yahoo expanded its community and
communication services. Yahoo! Clubs was launched to
enable individuals to create personal and customized Web
communities. The company unveiled Yahoo! Calendar to
provide registered users with a Web-based personal
calendar that can be viewed and edited from any Net-connected
computer. The launch of Yahoo! Calendar
strengthens Yahoo!'s strategy of offering services to its
registered membership base as a method of retaining them.
In addition, Yahoo! expanded its existing relationship with
AT&T by making it an Internet access service provider for
the Yahoo! Online Service.
Yahoo! also focused on its international efforts by
extending its merchant relationship with Amazon.com and
CDNow to a global scale on many Yahoo! global sites.
Yahoo! also extended the globalization of its Yahoo! Mail
and My Yahoo! services to the French and German
markets. In addition, the company added new advertisers
to Yahoo! international properties including Charles
Schwab International, Cisco Systems, Energizer-Eveready
Ltd., General Motors, Pepsi, Pirelli, Printemps, Renault
and Turner Broadcasting. New advertisers on Yahoo!'s
Asian properties during the quarter include Chinese Book
Store, Ericsson, Motorola, Nescafe and Phillips.
Raising Revenue and Earnings per Share Estimates
In light of company's strong 3Q98 results, we have raised
both our 1998 and 1999 revenue and earnings per share
estimates. Our revised revenue projections for 1998 and
1999 stand at approximately $189.4 million and $312.2
million, respectively. As a result, our earnings per share
estimates for 1998 and 1999 have been raised to $0.43 and
$0.62 per share, respectively.
Despite these strong results, we continue to feel the need to
balance Yahoo!'s strong operating results against the
company's current market capitalization. The stock's multiple
to forward 1999 revenues (approximately 34.3 times) exceeds
by a substantial margin that of any other company within the
Internet space. At the same time, Yahoo! shares trade at
approximately 266 times our expected 1999 earnings per
share. Given the magnitude of those multiples, we maintain
our current (Neutral/Buy) rating on the company's shares.
Were we to see any significant protracted decline in the value
of Yahoo! shares, we would expect to re-evaluate our rating at
that point.
[YHOO] The securities of the company are not listed but trade over-the-counter in the United States. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from
registration or have been qualified for sale. MLPF&S or its affiliates usually make a market in the securities of this company.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -Reduce,
5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
Copyright 1998 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). This report has been issued and approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is
regulated by SFA, and has been considered and issued in Australia by Merrill Lynch Equities (Australia) Limited (ACN 006 276 795), a licensed securities dealer under the Australian Corporations Law. The information herein was
obtained from various sources; we do not guarantee its accuracy or completeness. Additional information available.
Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments").
MLPF&S and its affiliates may trade for their own accounts as odd-lot dealer, market maker, block positioner, specialist and/or arbitrageur in any securities of this issuer(s) or in related investments, and may be on the opposite side
of public orders. MLPF&S, its affiliates, directors, officers, employees and employee benefit programs may have a long or short position in any securities of this issuer(s) or in related investments. MLPF&S or its affiliates may from
time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report.
This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific
person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that
statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive
back less than originally invested. Past performance is not necessarily a guide to future performance.
Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced
by the currency of the underlying security, effectively assume currency risk. |
