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MARKET SAVVY

Yahoo's Profit Beats Estimates by Nearly 40%

July 08, 1999|KAREN KAPLAN | TIMES STAFF WRITER

Strong membership growth of more than 260% in a year--and advertisers' apparent desire to reach those members--propelled Yahoo Inc. to second-quarter earnings of 11 cents per share, excluding merger-related expenses, the company said Wednesday. The figure beat analysts' expectations by nearly 40%.

The Santa Clara, Calif.-based Internet portal took in $115 million in revenue in the quarter ended June 30. That was a 156% increase over the $45 million in revenue reported in the same quarter last year.

Yahoo's profit rose to $28.3 million for the quarter, not including expenses related to its acquisitions of GeoCities, Online Anywhere and Encompass. That was nearly 20 times greater than the $1.46-million profit Yahoo made during the second quarter of last year.

The 11-cent-per-share profit was considerably higher than the 8 cents analysts were expecting, according to a survey by First Call, which tracks earnings estimates. Although Yahoo shares fell $8.06 to close at $167.06 in Nasdaq trading Wednesday, they rebounded to $173 in after-hours activity following the earnings announcement.

Including the merger-related charges, Yahoo lost $15.1 million in the quarter, or 7 cents per share. Last year, it lost $14.2 million, or 8 cents, including extraordinary charges.

Analysts said they were surprised by the rate at which Yahoo gained members for its site, which allows users to navigate the Web, send and receive e-mail, plan trips, research stocks and shop online, among other activities. The company also impressed analysts with its ability to sell advertising to companies that wanted to reach its user base, which Yahoo said grew to more than 80 million visitors in June.

"The results prove that advertising is alive and well on the Internet," said Paul Noglows, an analyst with Hambrecht & Quist Inc. in San Francisco. "The players with the most effective platforms are doing better than anyone expected."

Yahoo's base of registered users--who supply the company with valuable demographic information that advertisers covet--ballooned to 65 million by the end of June, compared with 18 million last June, the company said. In addition, it served up an average of 310 million Web pages per day in June, up from 115 million a year ago, according to the company.

Yahoo converted those eyeballs into dollars by offering advertisers a sophisticated array of marketing services instead of relying on simple banner ads, analysts said. Yahoo President Jeff Mallett said advertising accounts for about 75% of the company's revenue.

Yahoo's strategy "allows Internet advertising to move beyond simple brand-based advertising and into product testing, direct marketing and product research," said Scott Reamer, an analyst with S.G. Cowen & Co. in New York. That's important because companies have more money to spend on those kinds of targeted advertising activities, he said.

Yahoo is also on track to record several billion dollars' worth of revenue from electronic commerce this year, Mallett said.

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