Yahoo! Making Progress, but Rebound Is Far Off

For Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks), slow and steady will win the race -- emphasis on slow.

In its conference call with analysts Wednesday night, new CEO Terry Semel said the company didn't expect the Internet advertising market to pick up until mid-2002, jibing with DoubleClick's (DCLK Quote - Cramer on DCLK - Stock Picks) Tuesday-evening appraisal of the market.

In the meantime, Yahoo!, after announcing second-quarter results that edged past Wall Street estimates, spent its call trying to persuade analysts that it was making moves that would guarantee short-term survival and long-term profitability.

And the market seemed persuaded, sending the company's shares up to $19.40 on Island after the call's completion, 14% above the regular market close of $17.03.

Chief Financial Officer Sue Decker told analysts that it wasn't just a question of the amount of Yahoo!'s revenue, but its composition: "With each passing quarter, our revenues are becoming of higher quality," she said, adding that they were coming from a more established clientele and were more diversified, less cyclical and more recurring in nature.

Business and premium services made up 18% of revenue for the quarter, up from 9% a year ago and on track to approach 20% for the full year, Yahoo! said. The percentage of revenue traceable to pure-play dot-coms amounted to 26% in the quarter, down from 30% in the first quarter of the year and continuing a trend from late 2000.

The company is steadily lowering its operating costs, too, said Decker. Expenses, which amounted to $194 million in the first quarter, fell to $191 million in the second, excluding one-time restructuring charges. That drop came despite spending on new initiatives and on higher cash compensation, said Decker.

In addition, Decker said, the company was cutting back its capital spending for the year by $25 million. Yahoo! now expects capex to come in between $110 million and $120 million, she said.

Yahoo! had $1.75 billion in cash on hand at the end of June -- $25 million more cash than it had on hand at the beginning of the quarter.

Apparently the message got through to the market: Yahoo! is the ant, not the grasshopper, piling up enough supplies to keep it alive during the long advertising winter.