I echo Brian Graney's conclusion that, "If you want to see what a cash-generating machine in overdrive looks like, Yahoo! is currently one of the best examples out there." But if that's so, why did the market knock the stock down more than 10% to $357 and change?
For that, I have not the slightest idea. More sellers than buyers today, I guess. What really matters is that Yahoo!'s business continues to fire on all cylinders. It all boils down to the fact that Yahoo! is collecting the most eyeballs for merchants and advertisers by offering the most compelling aggregated content on the Web. During the quarter, Yahoo! expanded its base of advertising clients to 3,550, up from 3,150 in September. Further, 97% of clients renewed their contracts, and the average contract length expanded to 192 days, up from 171 days in September.
At today's closing price, Yahoo! is valued at $108 billion. Is that too much to pay for the company that is the leading destination for Web users? (Just think about how much time you, yourself, spend on Yahoo! sites.) Is it too much to pay for the company that Advertising Age (October 1999) ranked "Best Ad Value'' and "Best Environment for Advertising'' versus all other major online media companies? Never mind the P/E ratio of 1774 based on trailing earnings per share. Looking backwards is no way to catch up to a company in hyper-growth. If Yahoo! maintains its business momentum and keeps its sales and cash flow growing at a pace of at least 50% year-over-year while keeping a squeaky clean balance sheet, then I believe today's valuation still leaves open the possibility of handsome returns for shareholders in the coming years.
But hey, this is stuff I've mentioned before.
Let's, instead, go to the most recommended posts on the Yahoo! message board in search of some additional insight on Yahoo!'s strategy and competitive position. Here are a few clips from several excellent posts:
In his assessment of Yahoo!'s quarter, stjolly777 comments:
"Yahoo shopping now has more than 9000 merchants! (They had 7,000 last quarter.) Currently Yahoo is not charging fees for auctions -- can you imagine what will happen when they start a nominal fee? Again margin expansion! With 9,000 merchants they will probably be able to begin charging merchants a small percentage fee as well. The management team has a plan... and they are executing."
On the topic of how the AOL-Time Warner merger impacts Yahoo!, nunciato writes:
"I think Yahoo *should* remain an independent entity because it has clearly demonstrated an ability to command its sector, and to be profitable while doing so. Yahoo is, plain and simple, the best at what it does. In fact, merging with a giant media company could jeopardize the way the public reacts to Yahoo; part of the reason it's so appealing is because it embodies, in a way, everything the Internet has to offer. (And I've noticed that people sometimes tend to hate the Big Dog simply because it's the Big Dog.) I'm 100% for Yahoo continuing to kick ass on its own, and I see no reason why it cannot continue to do so -- regardless of the AOL-TW deal. Yahoo operates successfully and independently of connection speed or service provider. And with its current mindshare, all it has to do is keep adding services and keep doing it well, and people will continue to love it just the way it is."
On the same topic, koch adds:
"I read that AOL paid a 70% premium for TWX. Certainly TWX is a well known mature company, and whatever value investors put on the company before the AOL deal should have been more-or-less fair value. I use this reasoning to say that AOL felt they were in dire need of broadband access, and thus TWX had the serious upper hand in the merger.
"Now, I think this reminds us of one excellent facet of Yahoo's strategy. They have openly stated that they wish to remain accessible to consumers via ALL Internet connections. No matter whether people are using AOL dialup, RoadRunner Online, their office network, Palm VII, Sprint PCS, their Lincoln Continental... whatever mode of connection, the consumer can reach Yahoo. This is the Yahoo! Everywhere strategy.
"Not only does Yahoo not have a broadband emergency, they in fact have a broadband blessing. If the AOL/TWX merger goes through, then all of a sudden, millions of users have faster access to Yahoo and will generate more page views and the Yahoo community will grow."
That's it for tonight. For all the nitty-gritty on Yahoo!'s quarter, I've added my own notes to the Yahoo! message board. Join us there to discuss the company's strategy, its "insane" valuation, or pretty much anything. You might also ask a question of Yahoo!'s CEO Tim Koogle, who will be interviewed on the upcoming Fool Radio Show. (One excellent question has already been posted.)
Speaking of the Radio Show, if you're interested in asking a question or making a comment on this week's program, give Mac Greer a shout at firstname.lastname@example.org.
See ya on the boards,