Replies to post #544 on Looksmart Limited (LKST)

[Ollie]

Yahoo: peaked or primed? 2003-02-08

The Internet company's business model suggests that recent operating gains are no fluke



On a recent conference call with analysts, Yahoo! (YHOO) CEO Terry Semel told investors, "We just finished Act One, and much more is yet to come."

Give credit where it's due: Eighteen months after taking the reins of Yahoo! (YHOO) and promising to get the company back on track for growth, CEO Terry Semel appears to be delivering the goods. Sales have been steadily rising in recent quarters, thanks in part to a string of acquisitions. Bottom-line performance is also good. Investors have responded by trading up the stock in recent months. When YHOO hit $20 in January, analysts suggested that the stock's run was likely to lose steam, which caused shares to settle around 15 percent down from the peak.

Just a year ago, many wondered if the company's quarterly losses would become a permanent fixture. Now, EPS is on the rise, and analysts see continued strong gains ahead. Per-share profits are expected to rise from $0.17 in 2002 to around $0.30 in 2003, before rising more than 30 percent again in 2004.

Sure, the stock looks pretty pricey at 61 times forecasted 2003 EPS, but if you dig into the company's business model, you can envision profits rising well higher in future years.

Yahoo! has spent years building a massive platform that can now easily absorb—and profit from—new ventures. The company's recent acquisitions have been quite successful, simply because those services—in areas like job listings and online dating—got a tremendous boost from the global popularity of the Yahoo! Web site.

Although few can predict where the company will head next, Semel has been clear that he will continue to move aggressively to build sales and profits to higher levels, and, with more than $1.5 billion at his disposal to spend on new initiatives, he can certainly put his money where his mouth is.

Bottom line: YHOO's recent operating gains are no fluke, and while shares may be pricey on 2003 earnings, they're a bargain for buy-and-hold types.