Updated from April 7 Yahoo! ( YHOO) gave its growing legion of fans lots to cheer about Wednesday afternoon. Kicking off the pivotal first-quarter earnings season for the Internet sector, the Sunnyvale, Calif., media giant posted stronger-than-expected numbers. It also laid plans for a 2-for-1 stock split and boosted 2004 guidance. The news sent the stock surging 10% in wild postclose action, and the party continued Thursday morning. The shares were recently up $6.30, or 13%, to $54.65 on the Instinet premarket session. Although analysts have been saying that Yahoo! is benefiting from the postbubble recovery of the Internet advertising market, they clearly underestimated the extent to which Yahoo! has been cleaning up. "Everything that we have achieved is the result of a very deliberate and focused strategy," CEO Terry Semel said on the company's Wednesday conference call. Semel said that the organic growth rate of the company's marketing-services revenue could approach 35% this year, up from the company's prior forecast in the range of 25% to 30% growth. Thus, he said, the company is "gaining share in an industry which is also gaining traction." Ahead of the news on Wednesday, Yahoo! fell 42 cents to $48.35, leaving it just shy of its 52-week high. CSFB raised its price target to $65 from $57 Thursday morning, while Goldman upped its target to $60 from $55.
"Yahoo!'s performance surpassed even our high expectations, delivering the most successful quarter in the Company's history," said Semel. "With our products more popular than ever before, we have experienced success across our entire business, including strong growth in our fee-based and marketing services."
Typical of the warm feelings toward Yahoo! on the Street is a report issued last week by American Technology Research's Mark Mahaney, who initiated Yahoo! with a buy rating and a $64 price target. Citing a bullish outlook for Internet advertising, among other factors, Mahaney called Yahoo! his top buy recommendation among large-cap Internet companies -- for investors with a 12-month time horizon. (Mahaney's firm has no banking relationship with Yahoo!.) One of the key factors driving Yahoo! is the growth of Internet advertising, writes Mahaney. He forecasts overall growth in 2004 U.S. Internet advertising of 30%, up from 20% growth in 2002, though behind the fourth-quarter 2003 year-over-year growth rate of 38%. For the latest quarter, the company's marketing services revenue, excluding traffic acquisition costs, amounted to $427.8 million, according to TheStreet.com's calculations. ATR's Mahaney, for one, had forecast marketing services revenue of $390.9 million. The company's operating margins, excluding TAC, amounted to 24% for the latest quarter, up from 19.4% one year ago.