Filter looks at the day's top technology news through snapshots and analysis of what the world's media outlets are covering. Washingtonpost.com's new Mon.-Fri. feature is penned by technology reporter Cynthia L. Webb. If a technology story breaks, a company falters or triumphs, or there's a new trend in technology, Filter wants you to know about it.
By Cynthia L. Webb washingtonpost.com Staff Writer
Thursday, July 8, 2004; 9:34 AM
Yahooreported record second-quarter revenue and more than doubled its profit from a year ago, but the Street is proving notoriously tough to satisfy.
The Internet search engine company's stock tumbled yesterday in after-hours trading after its results failed to appease investors who are looking for even stronger signs of a tech recovery. The company logged $113 million in profit on $832.3 million in revenue, compared to $51 million in profit on $321.4 million in revenue a year ago.
The San Jose Mercury News noted Yahoo "again raised its financial projections for 2004, projecting revenue will range from $2.46 billion to $2.54 billion. That's slightly more than the $2.41 billion to $2.52 billion estimate it made three months ago. Even with that, the company's stock was down 12 percent in after-hours trading to $28.75 a share." The Associated Pres explained reasons for the drop. "Yahoo has consistently beat its guidance in recent quarters – and Wednesday the company also failed to boost its revenue outlook as aggressively as it has in the past."
The Mercury News further described the reasons for Wall Street's discontent. "Yahoo has emerged from the Internet downturn faster than just about any other large company, consistently beating analysts' expectations as it exploits a surge in online advertising. Its stock has about doubled in the past year. But many investors are now wondering whether the company – whose stock was trading at about 130 times its earnings per share – may be overvalued. Underscoring that sentiment, Prudential Equity Group on Wednesday downgraded Internet portals, including Yahoo, to a 'neutral' rating, pointing to their run-up in stock prices," the paper said. "The view among investors this week was that Yahoo needed to handily surpass analysts' expectations – as it did last quarter – to warrant a boost in its stock price. Instead, the company's numbers came in under what some analysts expected, helping fuel a sell-off on Wall Street."
• San Jose Mercury News: Yahoo Posts Record Revenue (Registration required)
• Associated Press via washingtonpost.com: Yahoo's 2Q Profit More Than Doubles (Registration required)
The Washington Post said "some investors appeared to be looking for the company to do more than merely meet analysts' expectations, as it did yesterday." Piper Jaffray Co. analyst Safa Rashtchy told the paper: "The quarter was very good, but it was below the broader expectations that were out there." And: "Yahoo's strong first quarter 'created the context and expectation that this quarter would have a comparably massive upside,' he said."
• The Washington Post: Yahoo's Profit Soars, But Stock Price Falls (Registration required)
More analysts chimed in: "People are disappointed," Scott Kessler, an equity analyst at Standard & Poor's Corp., told The Wall Street Journal. "Last quarter was such a blowout that the expectations were too high." And Jordan Rohan, an equity analyst at Schwab Soundview Capital Markets, told CNET's News.com: "I believe investors have overestimated the growth in search." Mark Mahaney, an American Technology Research analyst told USA Today: "They had such a killer first quarter that when the results weren't as dramatic, they got clobbered."
• CNET's News.com: Yahoo Profit Doubles; Shares Tumble • USA Today: Yahoo More Than Doubles Revenue, Profit
A 'Red Hot' Future
Yahoo downplayed financial analysts' reactions. "We don't pay attention to those external expectations," Dan Rosensweig, Yahoo's chief operating officer, told the San Francisco Chronicle. "From our perspective, we are absolutely pleased. We focused on doing what we said we were going to do, and everything else takes care of itself." Yahoo Chief Financial Officer Susan Decker told USA Today: "We try to focus on what we can control, which is how we did, not what analysts expected. It was a record quarter." Yahoo Chairman and chief executive Terry Semel kept things on a high note during the conference call yesterday. "We delivered the best quarter in Yahoo's history," Semel said, as quoted by the Chronicle. "The past year has been a period of unprecedented growth. ... I think we have a fantastic long-term growth potential ahead... Yahoo is on the move."
• The San Francisco Chronicle: Yahoo Hits Another Record
Success, of course, is never guaranteed. "Whether Yahoo will be able to continue its renewed success depends largely on how well it continues to compete with the likes of Microsoft Corp. and Google Inc., which are increasingly going after the same Internet businesses as Yahoo with their Web portals and properties," The Washington Post reported.
Nevertheless, The Wall Street Journal noted: "Yahoo executives remained upbeat, saying that they were even more optimistic about their 2004 growth than after the first quarter. 'Our businesses are red hot,' said Yahoo chairman and chief executive Terry Semel in an interview. 'We feel fantastic and the results are really great.' Advertising-related revenue accounted for 83% of Yahoo's total revenue, roughly the same as the previous quarter. Yahoo's October acquisition of Overture Services Inc., which provides ads that appear alongside Web search results, helped boost second-quarter results compared with the year-earlier period. Rival Google Inc.'s planned initial public offering of stock has focused investor attention on the lucrative market for search-related ads. Excluding commissions that Overture pays its marketing partners, Yahoo reported ad revenue of $609 million. Yahoo had projected revenue on that basis of $580 million to $615 million."
And the Journal saw this silver lining: "While some analysts may have wanted more, Yahoo's growth stands in sharp contrast to the spate of earnings warnings issued by other technology companies in the past week. Companies may be holding the line on technology purchases, but Yahoo's results underscore the fact that many are spending on advertising."
