Yahoo! makes the right moves

Yahoo! Inc. announced Wednesday that it will buy Four11 Corp., a privately held Internet directory service, and take a one-time charge of $4 million in its fourth quarter.

Also, the Internet navigation site signed a pair of agreements with Compaq Computer Inc. and Gateway 2000 Inc. to distribute its services from the desktop via the PC makers' Internet Explorer 4.0 channels. Yahoo!'s news ticker, personalized search, sports and weather reports are available on the full line of Compaq's popular Presario home PCs.

Both deals, analysts said, will bolster Yahoo!'s growing presence and stature on the Internet and go a long way toward legitimizing the Santa Clara, Calif., company's long-term business potential.

"Both of these moves are very positive steps in the right direction," said Paul Noglows, an analyst at Hambrecht & Quist. "Yahoo! is setting itself up as a portal or gateway to the Internet. They want to be the first site people go to when they start their Internet sessions."

The timing of the announcements couldn't have been better. Yahoo! will release its third-quarter earnings and revenue report after the market closes and it's expected to reflect the firm's second-consecutive profitable quarter.

First Call consensus expects Yahoo! to post a profit of 1 cent per share this quarter. Last quarter, analysts anticipated a small loss, but Yahoo! surprised everyone with its first profitable quarter and a 1 cent per share gain.

"I'm expecting them to return about 2 cents per share profit on revenues of $15 million," Noglows said. "I wouldn't be too surprised if they beat that figure either."

To acquire Four11, Yahoo! said it will issue more than 1.6 million shares of common stock for all outstanding Four11 shares, options and warrants. The deal, estimated at about $4 million, will close in the fourth quarter. The Four11 deal will allow Yahoo! to offer free E-mail to its users as well as a more a comprehensive listing of phone numbers and addresses.

"The free E-mail is an excellent community and membership building tool," Noglows said. "It's just another reason for people to visit the site and another reason for advertisers to buy space there."

Shares of Yahoo! were up $1.75 per share to $57.50 in early-afternoon trading.