In a move to grow its already expansive reach on the Web, Yahoo (YHOO) confirmed Thursday that it is buying online community site GeoCities for an estimated $3.56 billion in stock.

Under the terms of the agreement, Yahoo will issue 0.3384 shares of Yahoo for each share of GeoCities common stock. The deal is expected to close in about three months.

"This deal makes very strong strategic sense," said Tim Koogle, Yahoo's chairman and CEO, in a conference call with analysts Thursday morning. "This is two of the Web's strongest brands coming together."

The deal is just the latest big buy in the Internet industry. In November, America Online (dossier) agreed to buy Netscape for $4.2 billion, and last week AtHome said it would buy Excite (ATHM) for over $7 billion. Yahoo had also been in talks to buy both Netscape and Excite.

The deal combines the leading Internet portal with the largest home-page hosting community. Both companies are backed by Softbank; the Japanese company owns about 29 percent of both Yahoo and GeoCities. Investment firm CMG owns 30.9 percent of GeoCities.

According to Yahoo President and COO Jeff Mallett, the acquisition of GeoCities adds 10 percentage points to Yahoo's overall reach, which measures the percentage of people on the Web that come to a given site per month. According to Media Metrix figures for the month of December 1998, Yahoo properties ranked No. 3 in reach among all Web sites, at 48.2 percent. GeoCities ranked fifth, with 33.4 percent. Yahoo now stands at about 58 percent, outpacing AOL (dossier) Web sites, which have a combined reach of 54.5 percent.

The deal marks a change of strategy for Yahoo, according to Mallett. Prior to this deal, Yahoo chose to grow its reach organically, eschewing large acquistions that inflate those numbers. The GeoCities addition signals that the company has adopted a network strategy in which a number of well-known brands will stand under the Yahoo umbrella.

The acquisition, which will be accounted for as a pooling of interests and is subject to approval by GeoCities shareholders, is expected to be completed in the second quarter of 1999. Yahoo expects to record a one-time charge in the second fiscal quarter of 1999 relating to acquisition expenses.