Let’s start with Yahoo!, which created the Yahoo! search engine that helps people find stuff on the Internet. The company is being touted as “profitable” by many Netniks. And Yahoo! did, in fact, earn $96,000 in last year’s fourth quarter–pretty impressive for a company that’s barely two years old. But look behind the numbers, and you find that there’s less to Yahoo!’s profit than meets the eye.
How so? Because the company had $1,508,000 of investment income during that quarter. Hmmm. Without that $1.5 million, Yahoo! would have shown a $1.4 million loss for the quarter. And the investment income didn’t come from Yahoo!’s operations. Rather, it’s the money that Yahoo! earned on the money it amassed last year by selling $100 million of stock to investors. For 1996, Yahoo!’s cash earned $3.9 million, while Yahoo!’s operations lost $6.8 million. All eminently clear to anyone who bothers to read its annual report. (In the first quarter of this year, the company also reported a profit; that, too, is due entirely to investment income.)
I’m not putting Yahoo! down. You have to love a company that exudes a sense of fun and uses that ridiculous exclamation point in its name. Yahoo!’s cash gives it staying power, unlike many of its competitors. But the company still has to prove that it can consistently make money on its operations. At a total stock-market value of more than $1 billion (including option shares), Yahoo!’s share price still strikes me as a triumph of emotion over logic. But I’m a print troglodyte. What could I possibly know?
