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The Envy of the Net Set

SAN FRANCISCO -- Just call Yahoo! (YHOO) the uber-Net stock. In outpacing its rivals, it has led nearly every surge in Internet stocks during the past year.

So it shouldn't come as a surprise that as Internet stocks began to claw back their late July and August losses, Yahoo was once again the leader of the pack.

Was it the heavy demand for juicy tidbits from Clinton's testimony or the successful (if inexplicably so) initial public offering by


(EBAY:Nasdaq) Thursday? Probably neither.

Yahoo's stock closed Monday at 127 15/16, up 42% since Sept. 17, when CFO Gary Valenzuela

said the Santa Clara, Calif., company expects to boost quarterly profit margins to 30% by next September and annual margins to that level by 2000. That's up from the 16% to 22% margin Yahoo had been shooting for. And CEO Tim Koogle later said that sanguine forecast was a conservative one.

The revised forecast ignited expectations that Yahoo would again post strong earnings when it reports in early October. For three quarters running, Yahoo has beaten the Street's estimates by between 1 and 3 cents a share. This quarter, analysts polled by

First Call

are looking for earnings of 9 cents a share, up from 8 cents in the June quarter and break-even a year ago.

"Do you know anybody else that revises their operating margins by 100%?" asked Anthony Blenk, an analyst at

Everen Securities

, which rates Yahoo outperform (its highest rating). "There are so few companies in any sector that can achieve that kind of margin. That is awesome."

All this year, Yahoo has shared with

America Online


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the title of bellwether Internet stock. These three stocks determined the direction of the whole sector. Now Yahoo is pulling ahead of its rivals. Yahoo's Monday intraday high of 129 1/2 marks a 119% rise from the low point of 59 it touched Sept. 1. Compare that with the 85% rebound for AOL and the 72% rebound for Amazon in the same period.

Even more telling, Yahoo has broken through the highs it reached in July before the subsequent market correction. Its high point Monday was 25% above the watermark of 104 it had reached this summer. Despite their recent gains, both Amazon and AOL are still below their midsummer high points.

"Yahoo is growing like a weed," said Ned Brines, co-manager of the

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Phoenix Aggressive Growth fund. "They have been very successful in converting into a starting page and keeping people there longer."

Most of the devices Yahoo uses to keep visitors on its site -- email, chat, stock portfolios -- have been quickly copied by competitors. But just as the company has been faster in adding new features, it has been smarter about adding them with the financial efficiency that investors respect. For its second quarter, Yahoo's traffic rose 21% from first-quarter levels to average 115 million pages a day. That was more than its four biggest competitors --












-- combined.

For more information on institutional holders, financial statements and earnings estimates for companies in this story, see the

Thomson Company Reports