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Goofy Yahoo! Mantras Have Odd Resonance

Maybe the best really is to come in its big tilt with Google.

As irritating as it was to hear Yahoo! (YHOO) executives relentlessly repeat their catch phrase Thursday, they were awfully persuasive.

Throughout Yahoo!'s daylong pep rally for analysts, top Yahoo! execs topped off individual presentations with the progressively grating exclamation, "The best is yet to come!"

And yet, they had a point.

Yahoo!'s search-engine rival

Google

may have won the buzz battle lately, what with its filing for a $2.7 billion initial public offering, the concurrent disclosure of remarkable profitability growth, and its ability to keep details of its internal workings safely under the hood.

But over the course of the day, Yahoo! made a plausible case that the competitive threat from Google and others was under control, that huge opportunities for growth lie ahead, and that, indeed, past performance gives one reason to be confident of predicted future results.

As previously reported, Yahoo! said Thursday it would bump the maximum storage space on its free email accounts up from 6 megabytes to 100. That's a clear shot at the free Gmail service Google is testing, one that will offer users 1 gigabyte of storage in exchange for Google's privilege of displaying advertising related to the email's content. If Yahoo! executives are right -- that 100 megabytes is as good as 1,000 for most users -- then Yahoo! has done a good job of making Google's unique selling proposition not so unique.

While Google certainly has higher operating cash flow margins -- above 60% for Google,

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by one analyst's calculation, compared to below 40% for Yahoo! -- Yahoo! is gaining. On Thursday, the company upped its long-term OCF margin guidance from a range of 32% to 35% to a range of 40% to 45%. And while that forecast, along with a few others the company made, didn't come with an actual deadline, other numbers Yahoo! gave out indicated it was moving in the right direction.

Some of those numbers related to the company's international operations, which Chief Financial Officer Sue Decker indicated were the driver behind the company's increasing confidence related to growth and profitability.

Adjusted for joint ventures, the operating cash flow in Yahoo!'s international operations should grow from $139 million in 2003 to a range of $260 million to $295 million, Yahoo! forecast. That 2004 number reflects an estimated OCF margin of 36% to 38%. (Before adjustments, the growth would be from $36 million OCF in 2003 to between $100 and $135 million in 2004, with margins of 20% to 25%, compared with Yahoo!'s forecast of U.S. margins in the 41% to 42% range.)

"We don't see any reason our international properties can't be as profitable as the U.S.," said Decker.

Another factoid that the company threw out, though without a date attached, is that all it has to do is ride the rising tide of Internet advertising to hit some pretty impressive numbers. Just maintaining estimated 2004 market share suggests Yahoo!'s advertising revenue could double beyond 2004, adding $2 billion, the company said.

Yahoo! spent much of its presentation on Thursday discussing how its numerous properties and features -- shopping, search, sports, jobs, email and instant messaging -- were all well developed and were increasingly integrated into one another.

The implication was that what the company has created -- and what it is attempting to export, country by country -- will not be easily duplicated by Google, despite its financial resources and expertise.

"I think we have an unbelievable advantage," said CEO Terry Semel at the end of the day. He noted how Yahoo! is trying to improve the quality of all the things it offers around the world, "not start them from scratch."

Acknowledging the importance of search, Semel said it would be ever more important. However, he said, "We don't believe it's a standalone function."

Yahoo!'s newly split shares rose 27 cents Friday to trade at $27.37.