Yahoo! Sinks Despite Solid Quarter

Updated from 4:41 p.m. EDT

Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks) hit Wall Street's second-quarter earnings target Wednesday, but shares slipped as investors worried that the stock may have run out of gas.

The Sunnyvale, Calif., Internet media giant posted second-quarter earnings of $51 million, or 8 cents a share, up from $21 million, or 3 cents a share, a year earlier. Revenue rose 42% to $321 million. The EPS figure matched the Thomson First Call analyst consensus, while the top line was slightly stronger than the $315 million forecast.

The company emphasized in a postclose conference call that efforts aimed at increasing cooperation and efficiency have been paying off. "There is mounting evidence that Yahoo!'s engine is operating on all cylinders," CEO Terry Semel told analysts on the call. "Each piece of our engine is working more smoothly with all the others."

Semel said the online advertising market was continuing to show strength, with the company's traditional online ad revenue -- not paid-search revenue -- showing year-over-year double-digit growth for the second consecutive quarter.

Still, the market didn't receive the numbers kindly: Yahoo! shares fell more than 5% in after-hours trading. Some observers had wondered ahead of Wednesday's highly anticipated report how strongly the company would have to perform to maintain the powerful rally that has driven the stock to 52-week highs this week. Yahoo! has nearly quadrupled off last fall's lows.

Running in Place

Muddying the waters, Yahoo! made optimistic comments on its outlook but offered little to back up its kind words. "We are pleased that our own visibility in our financial prospects has increased," CFO Susan Decker said in a press release that indicated the company was "upwardly revising our business outlook" for 2003.

But in reality, the new numbers hardly represent a surprise to people who have been following the company. Yahoo! projected that third-quarter revenue would hit a range from $318 million to $338 million, straddling the Thomson First Call estimate of $330 million that analysts had going into today's announcement. Yahoo! ended up in the same spot with its full-year revenue guidance, nudging its forecast up to a range of $1.26 billion to $1.31 billion. Analysts were already expecting revenue of $1.28 billion for the year.

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