Although Yahoo is profitable, many speculative growth companies - including most Internet companies - lose money.
Of course, that is to be expected from a new venture. It's investing heavily to exploit profit opportunities, and if those investments pay off, earnings will materialize.
But to curb risk, we want to find companies that are making progress toward profitability.
Even if a company is losing money, net margins should be improving, even if that means becoming less negative.
Yahoo shows an encouraging trend in 1999.
Of course, that is to be expected from a new venture. It's investing heavily to exploit profit opportunities, and if those investments pay off, earnings will materialize.
But to curb risk, we want to find companies that are making progress toward profitability.
Even if a company is losing money, net margins should be improving, even if that means becoming less negative.
Yahoo shows an encouraging trend in 1999.
- After losing money in its first three years, Yahoo made a profit in 1998, with a net margin close to 5%.
- Furthermore, it had net margins above 20% in the third and fourth quarters of 1998 and the first quarter of 1999.
- Net margins declined over the next few quarters because of non-cash charges resulting from mergers, but operating margins (which exclude such charges) remained solid.
- Yahoo appears to have left its money-losing phase behind.
(My comment: A great company can still be a bad investment if you pay too high a price to own it.)
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