Yahoo! Makes Q3 Noise (Fool Plate Special) October 7, 1999

An Investment Opinion

Yahoo! Makes Q3 Noise

By Dave Marino-Nachison (TMF Braden)
October 7, 1999

Shares of portal giant Yahoo! (Nasdaq: YHOO) leapt out of the starting box this morning after the company reported impressive third-quarter earnings last night.

The numbers were of the massive sort expected from Rule Makers, an exclusive Foolish club to which Yahoo! belongs. Here's a quick rundown of a few meaningful figures of various stripe: Revenues were up 134% to $155.1 million, gross profits expanded to 84.7% from 80.9%, and net income was $0.14 per share, up from $0.02 a year ago and handily beating Wall Street's $0.09 consensus estimate. A gaggle of brokerages upgraded the stock this morning.

On the balance sheet side, Yahoo! has $791 million in cash -- up from $638 million at the end of Q2 -- and no debt. (There's an awful lot of data in the company's press release, so it's probably not a bad idea to click here and check it out in full.)

When a company reports numbers like those, its executives just love those conference calls -- and you could almost hear a flush of arrogance as CFO Gary Valenzuela ran down the company's financial results, pronouncing "analysts' estimates" like he was spitting snake poison into the dirt.

With a blowout quarter hanging like a Colt pistol at his side, Chairman and CEO Tim Koogle was free to pontificate rather than dissect the nitty-gritty of his company's last three months. In so doing, he probably thrilled Tom Gardner's Rule Maker team by making sure investors fully understood his company's dedication to the continued domination of its slice of the world.

"You can rest assured that we are as paranoid and as focused as ever on extending our franchise worldwide and as far as possible," Koogle said. "We'll be relentless in serving our customers extremely well and taking as large a share of the market as possible."

The key for companies like Yahoo! -- the Internet's top website in terms of unique visitors for August, according to Media Metrix -- is to broaden service offerings, increase accessibility, and deepen the amount of information in every category, all the while increasing brand awareness. Koogle wants his company to be everything to everyone on the Web, and as impossible as that may seem, no company is closer.

Koogle laid out six trends he believes will shape the evolution of the Web: a rapidly growing world market in terms of both users and spending; increased growth in available bandwidth and access; a trend toward multi-device and multi-network access; the rapid adaptation of Web-based enabled commerce worldwide; continued growth in integrated communications services; and a transition from distributed application software products to services.

"Yahoo! has strong positions in all these areas," Koogle said, "and it is our full intention to aggressively extend those positions."

It's international expansion that Koogle appeared most concerned with in last night's call, as he believes that for all of the untapped opportunity lingering in the U.S. there is even more overseas where the infrastructure and brands are less developed by comparison.

And although "international markets" sometimes seems like the latest 'Net buzzword meant to stir enthusiasm about potential growth, Yahoo! appears willing to spend to land foreign market access. In Q3, operating margins suffered when compared to last year's in part because of international efforts and the beefing-up of sales staff, according to the company.

"I think that all of you are beginning to see the power that a big brand, a truly direct global presence, and an integrated media, communication, and commerce platform can deliver," Koogle said. "The global service we have created... creates a business with inherent self-reinforcing scale and from which truly superior financial results can be derived if properly managed."

Judging not only by past results but by the company's apparent positioning and aggression, it would seem Yahoo! is on its way to delivering more results like the ones it turned in last night.

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