Despite stiff competition, Yahoo follows strategy of steady growth

Your Money

December 26, 2004|By Andrew Leckey

I've owned shares of Yahoo Inc. since 1999. What is the outlook for the company?

- D.T., via the Internet

This name-brand Internet powerhouse continues to move boldly ahead despite tough online competition from Google Inc., Microsoft Corp. and America Online.

Most recently, it launched a new upscale dating service, Yahoo Personals Premier, that emphasizes online personality and relationship tests for $34.94 a month.

Last fall, it bought online music service Musicmatch, the third-most-visited music site on the Web, for $160 million to get more people to view its Web site. Yahoo also received a mild face-lift that included the addition of a "music" button across the top of its home page.

In the race to offer new online features, it recently increased its e-mail limit on free accounts and put new anti-spam technology into effect.

Chief Executive Officer Terry Semel has an ambitious goal of deriving half of company revenue from non-advertising sales, which currently represent just 17 percent of sales. The company also has forged partnerships with BT, Rogers Cable and SBC Communications.

Shares of Yahoo (YHOO) are up 73 percent in 2004, after a gain of 175 percent in 2003.

The consensus rating of Yahoo from the Wall Street analysts who track it is a "buy," according to the Boston-based Thomson First Call research firm. That consists of five "strong buys," 13 "buys" and 12 "holds."

Yahoo each month attracts an audience of more than 325 million unique users and 150 million registered users who go through 2 billion pages of content. Channels include finance, shopping and travel. It is financially sound, with $2.9 billion in cash and short-term investments and just $750 million in convertible debt outstanding.

Third-quarter Yahoo profits nearly quadrupled to $253 million, which included a $191 million pretax windfall from selling its stake in Google when that rival search engine went public.

Internet advertising revenue provided the latest surge, thanks to a diverse business that is attracting traditional advertisers. It is estimated that the company accounts for 20 percent of the U.S. market for online advertising dollars. In addition, a number of its international divisions are earning operating profits.

Earnings are estimated to have increased 79 percent in 2004, compared with the 131 percent increase predicted for the Internet software industry. Next year's projected 47 percent gain compares with the 38 percent predicted industrywide.

The five-year annualized growth rate of 30 percent expected for Yahoo compares with 26 percent forecast for its peers.

I am 71 and have retirement funds in AllianceBernstein Growth Fund. I have been disappointed with the results, but my financial adviser tells me to stick with the fund. What's your opinion?

- R.H., via the Internet

After some years as a rather mixed-up, poor-performing fund, it has steadily improved since Alan Levi took the reins in late 2000 and put a growth-oriented strategy into place.

The $975 million AllianceBernstein Growth Fund (AGRFX) rose 15.48 percent over the past 12 months to rank in the top 6 percent of large growth funds. Its three-year annualized return of 3.31 percent put it at the midpoint of its peers.

"This fund has earned a spot on most investors' short lists and could work for someone looking to balance a value-oriented portfolio," said Dan Culloton, analyst with Morningstar Inc. in Chicago. "That is, so long as the investor doesn't mind the potential price risks from its aggressiveness or the operational risk from a company that was tainted by scandal."

AllianceBernstein was implicated in the mutual fund trading scandal and subsequently settled market-timing charges with state and federal regulators. It fired employees involved in the scandal, initiated reforms and cut the expenses on some funds. For example, AllianceBernstein Growth Fund's annual expense ratio was cut significantly to its current 1.51 percent, though that still doesn't qualify as remarkably low.

Levi himself owns shares of the fund. He often takes larger-than-average stakes in some sectors, a philosophy that carries some risk. He is also willing to buy aggressive stocks such as Broadcom or controversial stocks such as American International Group. The fund is permitted to buy small-cap stocks as well, which could be a problem if the large-cap market takes off.

Hardware, financial services and health care each account for more than 20 percent of the fund's assets. Other significant concentrations include consumer services and software.

Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney@ tribune.com.

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