Yahoo! Inc - Acquisitions And New Services, 1999-2000

ACQUISITIONS AND NEW SERVICES (1999-2000)

In 1999 Yahoo! enjoyed strong revenue growth and profitability due to its global operations. Its stock joined the Standard & Poor 500 Index. Early in the year the company announced that it would acquire GeoCities, one of the largest domains on the World Wide Web, for an estimated $3.5 to $5 billion in stock. GeoCities hosted personal Web sites and sold ads on those sites. In its most recent quarter GeoCities lost $8.4 million on sales of $7.5 million.

Later in the first half of 1999 Yahoo! made another major acquisition when it paid $5.7 billion in stock for Broadcast.com, a multimedia Internet broadcasting company with the capability to send TV-quality video over the Internet. For 1998 Broadcast.com lost $15 million on sales of $24.4 million. As part of its strategy to deliver content to wireless devices, Yahoo! acquired Online Anywhere in June for about $80 million. Online Anywhere's software would enable Yahoo! to more easily format its content for wireless devices.

Among the many new services introduced during 1999 on Yahoo! were auctions, Yahoo! Radio, Corporate My Yahoo!, electronic bill paying, and Yahoo! Everywhere. A new version of its instant messaging service incorporated live voices, allowing users to talk to each other by pressing a talk button. The company's broad array of services added a great deal of "stickiness" to its site and kept people coming back.

Yahoo!'s fourth quarter profits surged to $57.6 million on revenue of $201 million, due to soaring advertising and e-commerce revenue. During December 1999 traffic increased to an average of 465 million page views per day, compared to 167 million page views per day in December 1998. The company's international operations accounted for 30 percent of its traffic and 13 percent of its revenue.

Yahoo! enjoyed strong revenue growth during the first half of 2000. In the second half of the year the dot.com shakeout began to affect Yahoo!'s advertising revenue as advertisers cut back on their spending. Yahoo!'s mid-2000 acquisition of eGroups for $432 million in stock enhanced the company's e-mail communications services for its online communities.

At the end of the first quarter Yahoo! had 125 million registered users for its personalized services, an increase of 25 million over December 1999. Page views per day rose to 625 million in March. A promotional arrangement with Kmart's Bluelight.com resulted in 1 million new users for Yahoo! With a network of 10,500 linked merchants, Yahoo! claimed that it enabled more than $1 billion of online transactions in the first quarter of 2000.

Even though Yahoo!'s third quarter earnings exceeded expectations, the company's stock dropped 21 percent following its quarterly report. In spite of Yahoo!'s diversification, analysts noted that page views and site traffic were the most important factors driving the company's revenue. In the first half of 2000, advertising accounted for 91 percent of Yahoo!'s revenue, with business services accounting for the other 9 percent. In the third quarter the company's merchant and advertising base fell to 3,450 from 3,675 in the second quarter.

New services launched in 2000 included the Yahoo! B2B Marketplace, a site designed to help companies find products and suppliers by serving as a portal to other vertical trading communities. Targeting enterprise customers, Yahoo! introduced Corporate Yahoo!, an enterprise information portal that would contain both Yahoo! content and corporate data. Corporate Yahoo! included personalization features taken from the My Yahoo! service for consumers.

During the year Yahoo! upgraded its instant messenger service to let users conduct hands-free conversations by eliminating the talk button. Conversation links were also added to news stories to enable people to talk to other users about a particular story. Yahoo! Finance Vision was a new site that incorporated video interviews, original production, and editorial content from other providers, all on one Internet page.

Consumers interested in conducting their personal finance transactions online were introduced to a new account aggregation service on Yahoo!, where they could consolidate their banking, credit card, investment, and other financial account information using Yahoo!'s online banking center or its My Yahoo! personalization tool.

Yahoo!'s communications initiative and its Yahoo! Everywhere program converged when the company began offering free voice-based services that included Internet content over the telephone, voice mail, and long distance calling. With Yahoo! by Phone, users could call a toll-free number to check e-mail, weather, news, and other information. Yahoo! Mail was expanded to include voice mail, while Yahoo! Messenger was extended to include the ability to make free PC-to-phone calls.