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Yahoo! Predicts Better Sales and Profit

Posted on: Thursday, 10 July 2003, 06:00 CDT

By RACHEL KONRAD

SAN FRANCISCO (AP) -- Quarterly income more than doubled at Yahoo! Inc. as company executives touted a resurgence in Internet advertising that prompted them to increase sales and profit projections.

Yahoo, one of the Internet's most prominent brands and a bellwether for the industry said net income surged to $50.8 million, or 8 cents per share, in the second quarter. The company earned $21.4 million, or 3 cents per share, in the same quarter of 2002.

The results released Wednesday were in line with forecasts from analysts polled by Thomson First Call.

Net revenue for the second quarter was $321.4 million - a quarterly record and a 42 percent increase over the $225.8 million reported for the same period last year.

Yahoo, based in Sunnyvale, Calif., credited its performance to robust Internet advertising, as well as growth in the number of small and medium business owners who pay for services such as extra e-mail storage.

Yahoo executives also said they were pleased with the conversion rate of customers from free e-mail and news services to fee-based services such as fantasy baseball and multiplayer games. The company also said it increased revenue from fees on auctions.

Meanwhile, Yahoo! boosted expectations for third quarter revenue to at least $318 million, and to at least $1.26 billion for the calendar year. It previously estimated full-year revenue between $1.14 billion and $1.21 billion.

Executives said they were bullish on new services, including the recently launched online personal and classified ads targeting the United Kingdom and Germany. Yahoo plans to launch an improved news service on Monday.

The outlook underscores how far Yahoo has come since the company hired Hollywood movie executive Terry Semel as its new leader two years ago. At the time, Yahoo's fortunes were flagging, and in 2001 the company lost $92.8 million on revenue of $717 million.

After suffering another loss during the first three months of 2002, Yahoo has produced five consecutive profitable quarters.

Yahoo! built the comeback largely on advertisers willing to pay for prominent display in search results and subscribers who have been turning to the Web portal for high-speed Internet access.

"Each piece of our engine is working smoothly with the others, and the numbers show that over the last 18 months, our performance has been stronger and better," Semel, Yahoo's chairman and chief executive, said in a phone conference Wednesday.

Yahoo had 236 million registered users in the second quarter, including 116 million active users - up from 83 million active users in the same period last year. Active users are those most likely to become paying subscribers, spending between a few dollars a year and hundreds of dollars monthly for everything from fantasy sports to virtual document storage.

"We heard so much about online advertising finally starting to see some momentum, and Yahoo did see that happening," said Jeetil J. Patel of Deutsche Bank's San Francisco office. "But the unofficial expectations were even higher than anyone expected."

Patel said it remains an open question whether Yahoo will be able to sustain its expensive share price.

The company's biggest challenge may be retaining its price-to-earnings ratio, now 146. By comparison, the widely used measure of Wall Street's bullishness for companies is 31 for software giant Microsoft Corp. (MSFT) Online auction company eBay's ratio is 113.

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