Internet Gold Reports 9th Consecutive Quarter of Revenue Growth for Q2 2005

Internet Gold Reports 9th Consecutive Quarter of Revenue Growth for Q2 2005

Record Revenues of $16.5M for Q2 2005, Up 42% YOY and 11% Compared to Q1 '05

PETACH TIKVA, Israel, August 4/PRNewswire-FirstCall/ -- Internet Gold, (Nasdaq: IGLD) today reported its financial results
for the second quarter ended June 30, 2005.

Highlights of the Quarter

- Record revenues of $16.5 million: 9th consecutive quarter of revenue
growth

- Cash flow from operating activities up by 164% compared to Q1,
reaching approximately $3 million.

- Significant rise in revenues from international telephony activities.

- Increased Internet advertising revenues with market share reaching
approximately 25%

- Launch of 'smile' re-branding initiative to optimize marketing
investments and increase awareness of Group's scope of activities

Financial Results

Revenues for the second quarter were NIS 75.3 million (US$
16.5 million), an increase of 42% compared with NIS 53.2 million in the
second quarter of 2004, and an 11% increase compared with NIS 68.0 million in
the first quarter of 2005.

Gross margin for the quarter declined to 46% from 50.7% in the
first quarter of 2005, reflecting investment in successful efforts to build
the market share and user base of the Group's 015 International Telephony. As
a result, operating income for the quarter was NIS 7.9 million (US$ 1.7
million), a decline of 2% compared to the first quarter of 2005.

Net income for the quarter was NIS 4.7 million (US$ 1.0
million), or NIS 0.25 (US$ 0.06) per share, reflecting financial expenses of
NIS 3.7 million (US$ 0.8 million). The rise in financial expenses resulted
from the quarter's 1.1% rise in Israel's Consumer Price Index (CPI) and its
affect on the interest rate of the Group's CPI-linked bonds. Management views
the quarter's CPI rise as an unusual occurrence that is not likely to be
repeated during the remainder of 2005. Net income for the second quarter of
2004 was NIS 5.7 million, or NIS 0.30 per share, compared to NIS 6.6 million,
or NIS 0.36 per share, in the first quarter of 2005.

Cash flow for the quarter was NIS 14 million (US$ 3 million),
an increase of 164% compared to NIS 5.3 million in the first quarter of 2005.

Comments of Management

"The second quarter marked a significant period of revenue
expansion, growing cash flow and strategic progress for Internet Gold,"
commented Eli Holtzman, Internet Gold's CEO. "Our focus during the quarter
was to strengthen our positioning as a major player in all our markets and as
a leading Internet media group. Our primary investments were in two
directions: building the market share and user base of our IP Telephony and
IP media/portal businesses, and launching our 'smile' re-branding program.

"Our strategy for building market share included more
aggressive pricing policies, an investment that has paid off in revenue, user
and market share gains. Although the efforts reduced our gross margins and
operating profit temporarily, they succeeded in establishing strong business
platforms for these businesses that are necessary for the next stage of our
business development."

Mr. Holtzman continued, "We are very excited about our 'smile'
re-branding program. This is an evolutionary step for Internet Gold that will
help us build awareness of the broad range of our services while allowing
more effective utilization of our marketing dollars. The campaign is
currently in full swing now and we are delighted with the reaction so far."

"Taken as a whole, we are pleased with our progress and
working to take full advantage of opportunities in Israel's changing and
growing communications marketplace."

Overview of Business Segments

smile.net - access and value-added services: During the second
quarter, the company succeeded to increase its customer base while focusing
on the Russian sector. In addition, sales of the Business Division and Value
Added Services rose by 5% compared with the previous quarter as a result of
continued successful sales and marketing efforts.

smile.015 - International Telephony: Revenues from the Group's
international telephony operations increased significantly during the second
quarter, reflecting its rising market share and the ramp-up of hubbing and
incoming traffic services.

smile.media - e-Advertising/Content: The Group continued to
expand its e-Advertising and portal activities throughout the period.

- MSN Israel (50.1% owned) e-Advertising via MSN, MSN
Messenger, Hotmail and MSN Search: As of the end of the quarter,
MSN-Israel had a record of 873,000 active users of its Instant Messaging
service and 600,000 users of its new MSN Search service. Recently,
MSN-Israel announced joint ventures with Redmatch, with whom it will
establish an online employment site, and with Israel's Entertainment
Channel, with whom it will launch an entertainment portal.

- Acquisitions: the Group continues to pursue opportunities to
consolidate the marketplace through synergistic acquisitions and joint
ventures. Nirshamim, the academic portal acquired during the first
quarter, began making a positive contribution to the Group's top and
bottom line results during the quarter. Building on a strong base,
management expects that Nirshamim's performance will improve in the
future.

smile.shops - e-Commerce: Second quarter revenues of P-1000,
the Group's e-Commerce business, rose by 8% compared to the first quarter,
while operating income rose by 32% compared to the first quarter. With a firm
belief in the future growth of the sector, the Group is currently evaluating
acquisition and consolidation opportunities.

About Internet Gold

Internet Gold is a group of communications companies that
provide Internet access and related value-added services, international
telephony, e-advertising, content and e-Commerce services throughout Israel
under the brand name "smile". The broad range and popularity of these
services have established Internet Gold as one of Israel's leading Internet
Communications groups.

The Internet Gold Group includes four subsidiaries.
MSN-Israel, its (50.1% owned) joint-venture with Microsoft Corp. (49.9%
owned), provides Microsoft-branded Search, Instant Messaging, Hotmail and a
variety of portal services. Internet Gold International, a fully-owned
subsidiary, provide international Internet and communication services.
GoldMind, a fully-owned subsidiary, provides value-added services to Internet
subscribers. GoldTrade, the Group's fully-owned e-Commerce subsidiary,
operates e-Commerce sites.

For additional information about Internet Gold, please visit
its Website at www.igld.com.

NOTE A: Convenience Translation to Dollars

For the convenience of the reader, the reported NIS figures of
June 30, 2005 have been presented in U.S. Dollars thousands, translated at
the representative rate of exchange as of June 30, 2005 (NIS 4.574 = U.S.
Dollar 1.00). The U.S. Dollar (hereinafter - $) amounts presented should not
be construed as representing amounts receivable or payable in U.S. Dollars or
convertible into U.S. Dollars, unless otherwise indicated.

Certain statements made herein that use the words "estimate,"
"project," "intend," "expect," "believe" and similar expressions are intended
to identify forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks and uncertainties which could cause the
actual results, performance or achievements of the Company to be materially
different from those which may be expressed or implied by such statements,
including, among others, changes in general economic and business conditions
and specifically, decline in demand for the Company's services, inability to
timely develop and introduce new technologies, services and applications and
loss of market share and pressure on prices resulting from competition. For
additional information regarding these and other risks and uncertainties
associated with the Company's business, reference is made to the Company's
Annual Report filed with the Securities and Exchange Commission and its other
reports as filed from time to time with the Securities and Exchange
Commission.

For further information, please contact:
Ms. Idit Azulay, Internet Gold
+972 3 939-9848
idita@co.zahav.net.il

Consolidated Balance Sheets

Reported amounts

Convenience
translation
into
US Dollars
NIS
4.574=US$1
June 30 June 30 December June 30
31
2005 2004 2004 2005
(Unaudited) (Unaudited) (Audited)(Unaudited)
New Israeli Shekels - in US$
thousands thousands
Current assets
Cash and cash equivalents 271,164 94,918 75,637 59,284
Trade receivables, net 69,616 40,241 52,682 15,221
Other receivables 10,047 9,143 8,948 2,197
Deferred taxes 2,037 620 2,564 445

Total current assets 352,864 144,922 139,831 77,147

Investments
Deferred taxes 32 14 22 7
Long-term investments 275 - - 60
307 14 22 67

Property and equipment, net 39,625 33,402 40,583 8,663

Other assets and deferred charges 120,297 88,937 114,956 26,300

Assets allocated to discontinued 886 - 4,631 194
operation

Total assets 513,979 267,275 300,023 112,371

Consolidated Balance Sheets

Reported amounts

Convenience
translation
into
US Dollars
NIS
4.574=US$1
June 30 June 30 December June 30
31
2005 2004 2004 2005
(Unaudited) (Unaudited)(Audited) (Unaudited)
New Israeli Shekels - in US$
thousands thousands
Current liabilities
Short-term bank loans 9,621 6,620 10,950 2,103
Accounts payable 72,008 *59,635 73,383 15,743
Other payables 17,507 *14,441 13,784 3,828
Total current liabilities 99,136 80,696 98,117 21,674

Long-term liabilities
Long-term loans and other
long-term
obligations 52,756 41,840 72,117 11,534
Deferred revenues - 14 3 -
Liability for termination of
employer-
employee relations, net 6,794 5,447 6,240 1,485
Company's share in excess of
liabilities
over assets in investees - 9,566 - -
Convertible debentures 213,358 - - 46,646
Total long-term liabilities 272,908 56,867 78,360 59,665

Liabilities allocated to
discontinued
operation 265 - 1,653 58

Shareholders' equity
Ordinary shares 197 197 197 43
Additional paid in capital 223,539 215,040 215,040 48,872
Accumulated deficit (82,066) (85,525) (93,344) (17,941)

Total shareholders' equity 141,670 129,712 121,893 30,974

Total liabilities and 513,979 267,275 300,023 112,371
shareholders' equity

* Reclassified

Consolidated Statements of Operations

Reported amounts

Convenience
translation
into
US Dollars
NIS
4.574=US$1
Six month
Six-month period Three-month period Year period
ended ended ended ended
June 30 June 30 December June 30
31
2005 2004 2005 2004 2004 2005
(Unaudited)(Unaudited) (Audited) (Unaudited)
(Unaudited)(Unaudited)
NIS thousands (except NIS thousands (except US$
per share data) per share data) thousands
Revenues 143,340 104,175 75,325 53,199 219,577 31,338
Costs and
expenses:
Cost of revenues 74,213 44,191 40,673 21,625 96,820 16,225
Selling and
marketing
expenses 37,566 32,285 18,632 17,370 73,155 8,213
General and
administrative 15,532 11,311 8,090 5,481 24,258 3,396
expenses

Total costs and 127,311 87,787 67,395 44,476 194,233 27,834
expenses
Income from 16,029 16,388 7,930 8,723 25,344 3,504
operations
Financing expenses
(income), net 4,315 89 3,666 549 (122) 943
Other expenses (132) 1,498 (97) 856 1,077 (29)
(income), net
Net income after
financing
expenses 11,846 14,801 4,361 7,318 24,389 2,590
Tax expenses 568 1,301 (289) 782 (301) 124
(income)
Income after tax 11,278 13,500 4,650 6,536 24,690 2,466
Company's share in
net
loss of investee - 607 - 211 396 -
Income from
continuing
operations 11,278 12,893 4,650 6,325 24,294 2,466
Company's share in
loss of
investee from
discontinued
operations - 1,252 - 675 4,763 -
Net income 11,278 11,641 4,650 5,650 19,531 2,466

Income per share,
basic
and diluted
Net income per NIS
0.01
par value of
shares(in NIS)
from continuing 0.61 0.70 0.25 0.34 1.32 0.13
operations
Net loss per NIS
0.01
par value of
shares(in NIS)
from discontinued - (0.07) - (0.04) (0.26) -
operations
Net income per NIS
0.01
par value of 0.61 0.63 0.25 0.30 1.06 0.13
shares (in NIS)
Weighted average
number of
Shares outstanding 18,432 18,432 18,432 18,432 18,432 18,432
(in thousands)

Source: Internet Gold

For further information, please contact: Ms. Idit Azulay, Internet Gold, +972-3-939-9848, idita@co.zahav.net.il

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