Yahoo! home page

PALO ALTO, California (CNN) -- Higher-than-expected earnings, increased Web traffic and the announcement this week of a 2-for-1 stock split have investors in the Internet company Yahoo! screaming with delight.

Yahoo! is the largest of several Internet search engines, or directories, that categorize what's on the Web. The service is free to anyone with Internet access.

So how does Yahoo! make money?

The same way a TV or radio station does -- through advertising. Yahoo! determines its ad rates by the number of "page views" it receives. A page view is defined as one page of information displayed in response to a user's request.

In June, Yahoo! averaged 115 million page views a day, up from 95 million a day in March.

Meanwhile, the number of advertisers on Yahoo! rose from 1,600 to 1,800 in the second quarter of 1998.

Investor frenzy

Wall Street currently values Yahoo! at $10 billion, an astounding number for a company that is expected to earn $169 million in revenues this year.

Yahoo!, which closed at $184 a share Thursday, trades at roughly 350 times its earnings, meaning investors are willing to pay $350 for every $1 in profits.

Part of the allure of Yahoo! is the feeling that it is part of a "frontier" industry yet to achieve its huge technological and financial potential. The frenzy over Yahoo! has benefited other Internet stocks as well.

"Among some circles, Yahoo! is viewed as a bellwether," said Yahoo! President Tim Koogle.

It's commonly believed that what's good for Yahoo! is good for other Internet stocks. Stock in rival directories such as Lycos and Excite has also taken off in recent months.

Despite soaring profits, much of the interest in Yahoo! and its rivals seems based on a long-term outlook. Many feel Yahoo! is a solid investment as more and more people and businesses are going online.

Correspondent Rusty Dornin and Reuters contributed to this report.