Upbeat Yahoo Results Spur Confidence in Web Ads

After recent years of gloomy forecasts, the outlook for advertising dependent Internet companies grew brighter on Thursday following Yahoo Inc.'s (YHOO) report of strong quarterly earnings.

Industry analysts said good times are here again and should stay. That bodes well for many companies, including search service Google Inc. (search) and its widely expected stock offer.

The news sparked a major rally in Yahoo and other Internet stocks, but also prompted questions as to how long this new upsurge might last. Many investors still feel the pain of shattered stock portfolios from when the Internet stock bubble burst after 2000.

"Unequivocally, Yahoo's results are positive for the Internet sector," said Mark Mahaney, an analyst with American Technology Research.

He said major Web companies like Time Warner Inc.'s (TWX) AOL unit, Microsoft Corp.'s (MSFT) MSN portal, search providers like Ask Jeeves Inc (ASKJ), and others such as InfoSpace Inc (INSP) and FindWhat.com (FWHT) should all benefit from an apparent resurgence in online advertising.

On Wednesday, Internet bellwether Yahoo reported a first quarter net profit of $101 million, more than double one year earlier, driven largely by strong advertising sales.

Yahoo shares closed Thursday at $56.21 on the Nasdaq, up $7.86, or 16.3 percent, after hitting a session high of $56.24, their highest since November 2000.

InfoSpace stock rose 13.7 percent to $45.26, Mamma.com (MAMA) climbed 2.6 percent to $15.90, LookSmart (LOOK) closed up 13.3 percent to $2.21, DoubleClick (DCLK) rose 7.9 percent to $12.63, and FindWhat.com added 5.8 percent to $23.11.

Shares of China-focused Internet media firm Sina Corp. (SINA) rose 6.6 percent to $41.19.

Analysts said Yahoo's results might spur online search juggernaut Google to move more quickly on its much-rumored initial public offering. Google executives have consistently declined comment on whether and when it will go public.

"Seeing the market's reaction to Yahoo, the management team (at Google) has to be a little bit more enthusiastic" about filing for an IPO, Mahaney said.

Whether strong advertising sales hold remains a question, but far less of one now. Yahoo's results seemed to confirm that a surge in fourth quarter 2003 ad sales is sustainable.

PriceWaterhouseCoopers and the Interactive Advertising Bureau (search) have reported U.S. fourth-quarter online advertising revenue rose 38 percent to a record $2.2 billion and, for all of 2003, surged an estimated 20 percent to $7.2 billion.

The fourth quarter total topped the previous record of $2.12 billion in 2000's fourth quarter -- the tail end of the dot-com boom.

"The whole sector is responding very positively," said Greg Stuart, chief executive of the Internet Advertising Bureau. "A lot of those middle-content guys tell me they're up 40 percent to 70 percent this year from last year," he said, referring to Web sites that bring in online ad revenue of about $25 million to $100 million a year, such as those put up by The Washington Post, Forbes and The New York Times.

In a marked difference from dot-com boom times, analysts said that most remaining Internet companies now have proven and sustainable business models, including Yahoo, online auctioneer eBay Inc (EBAY) and Amazon.com Inc. (AMZN).

Moreover, a December study by the Pew Internet Project (search) showed the number of Web users continues to grow as people discover more things to do online, gain experience and utilize new applications like music downloading and online banking.

And where there are consumers, industry analysts said, there are advertisers.