Yahoo Q4 Beats Expectations, But Revenue Falls Again
A continued rebound in display advertising helped Yahoo beat fourth-quarter earnings expectations, but its weaker-than-expected outlook for the current quarter was a reminder that the Web portal is still struggling to revive growth.
Yahoo Tuesday reported a fourth-quarter profit of $312 million -- or earnings per share of 24 cents -- on net revenue of $1.2 billion. Wall Street analysts had forecast net revenue of $1.19 and profit of 22 cents a share. Gross revenue of $1.5 billion was in line with analyst estimates.
Even so, that figure was down 12% from a year ago. Net revenue dropped 4%. And Yahoo's projected net revenue in the first quarter of between $1.02 billion and $1.08 billion fell below the $1.13 billion forecast by analysts. The company said its lower first-quarter estimate was due to factors, including new revenue-sharing costs from its search alliance with Microsoft even as real gains from the deal have yet to materialize.
During a conference call with analysts, Yahoo CEO Carol Bartz assured that the company's turnaround was well underway, with display ad revenue up 16% from a year ago and the transition of paid search to Microsoft in North America completed on schedule during the quarter. She said the company had made "steady progress" toward increasing revenue and profitability as part of the turnaround she undertook two years ago when joining Yahoo.
That effort included additional cutbacks Tuesday, which Yahoo disclosed in advance of its earnings report. The company confirmed letting go of about 140 employees, or 1% of its global staff to reduce costs and help revitalize its business. In December, the company laid off about 600 workers -- or 4% of its workforce --stly within the products group.
Bartz said Yahoo would add more staff in 2011. "What we're doing is reallocating so that people we have are working on our new products and our new strategy," she said. "We'll exit the year with more people but still have flat costs."
As in recent quarters, the bright spot for Yahoo remained the display ad side of its business, which saw another double-digit gain in the quarter as brand marketers continued to loosen their wallets as part of a broader online ad recovery in 2010. Seasonal ad spending typically increases during the fourth quarter as well.
Search ad revenue, by contrast, fell 18% from the year-earlier quarter as Yahoo began making revenue-sharing payments -- amounting to $32 million -- during the quarter without yet being able to capitalize on increased efficiencies through its partnership with Microsoft. Yahoo executives acknowledged that the deal had not yet produced expected results in terms of revenue-per-search and click yield as advertisers and affiliates continued to adapt to the new system.
Bartz and Yahoo CFO Tim Morse reiterated that Yahoo would not begin to reap the benefits of a fully optimized Yahoo-Bing search marketplace until the second half of 2011 and 2012. Yahoo and Microsoft's combined share of queries remained about 28% in December compared to about 66% for Google, according to comScore. But Google's share of the paid-search market has continued to grow, reaching 82.6% in the fourth quarter compared to 17.4% for the combined Yahoo-Bing offering, according to SearchIgnite.
"Whenever you make big changes, as we're doing with the search alliance, it takes some time to adjust," said Bartz. "But we're confident the alliance will be able to show positive growth in search by the end of the year."
Yahoo investors didn't appear to be as patient as the stock was down more than 2% from its $16-per-share closing price in after-hours trading Tuesday.