NEW YORK (AFP) - With its latest surge in quarterly earnings, Yahoo showed that it has found a path to riches on the Internet, and its outlook for growth is strong as it diversifies its revenue sources, analysts say.
The Internet portal giant on Tuesday reported its third-quarter profit more than tripled from a year ago to 253.3 million dollars, helped in part by ceding its stake in rival Google. Revenues meanwhile more than doubled to 906.7 million dollars.
Morgan Stanley's Mary Meeker called Yahoo's report "impressive," and reiterated her rating on the Silicon Valley group.
"We maintain that investors underestimate the positive impact ongoing usability improvements will have on boosting user engagement, advertising inventory growth and related revenue and profit growth for Yahoo," Meeker said.
Piper Jaffray followed by reiterating its "outperform" rating on the stock and raised its price target.
"We believe much is left to be seen in the fourth quarter and especially in 2005, as many of the initiatives that Yahoo recently launched should start to bear fruit," said analyst Safa Rashtchy.
Yahoo and Google have demonstrated that money can be made on the Internet through so-called paid search listings -- sponsored listings that are targeted to Web users based on their search words. Meanwhile Yahoo and others have been able to use their portal to direct customers to autos, finance, travel and entertainment, taking a cut of the profits.
"Yahoo began to demonstrate the next stage in the Company's evolution in the third quarter, and in doing so recorded its sixth consecutive quarter of record revenue," said Terry Semel, chairman and chief executive officer.
"We accelerated the pace at which new products and services were developed, which in-turn helped increase the level of user engagement across the Yahoo network. Our engaged audience enables us to deliver an unmatched set of advertising opportunities, providing deeper value to our marketers, and supporting the mantra that great products are the key to a great business."
Analysts said the paid search business was the key driver for Yahoo, which has the largest number of Internet users. But Yahoo is also diversifying its revenues.
"Beyond search, Yahoo also demonstrated impressive momentum in branded advertising, subscriptions, user growth and free cash flow generation," said Smith Barney's Lanny Baker.
"While search leads, the business is delivering very balanced multi-source growth."
Breaking down the quarterly results, Yahoo said marketing services, which includes revenue from paid search and branded advertising, grew to 765 million dollars, up 212 percent from last year.
Fee revenue for the quarter totaled 104 million dollars, a 31 percent increase from a year ago, driven by growth in premium services.
Revenues from the United States jumped 118 percent to 655 million dollars, while non-US revenues surged 341 percent to 252 million dollars.
SG Cowen analyst Jim Friedland said the outlook for Yahoo is strong and that the firm is a good bet for investors seeking to benefit from Internet growth.
"We have increased our 2005 revenue and (earnings) estimates slightly to account for the company's acquisition of Musicmatch and strong branded advertising business," he said.
"We continue to believe that Yahoo is the best way to play the rapid growth in the Internet advertising business and expect the shares to outperform the market over the next 12 months."