• by Ross Fadner , October 12, 2004

The third quarter proved to be another quarter of record revenue growth for Internet industry weathervane Yahoo! Inc. The Sunnyvale, CA mega portal and search provider said third-quarter sales grew 154 percent over the previous year to $907 million--85 percent of which came from its search marketing and brand marketing services.

During an earnings call, Yahoo! Chairman and Chief Executive Terry Semel delighted in the firm's "continued, exceptional" growth of six straight quarters of record revenues.

For the third quarter, marketing services--which includes brand advertising and paid search--grew 212 percent to $765 million. The company did not break out the revenue in its marketing services division, but investment banking firm Goldman Sachs estimated Yahoo!'s paid search business at $273 million.

Revenue was $655 million for the quarter, up from 357 million in the comparable period a year ago. The earnings were pegged at 9 cents per share.

Yahoo! ended the quarter with 325 million unique users, up 33 percent from 245 million last during last year's third quarter. The company said it ended the quarter with 7.6 million paying subscribers. Listings revenue was $37 million, short of last quarter's $38 million.

Yahoo!'s Semel said the company's growth strategy will involve the "integration of search, community, personalization, and content in a way that puts users in the driver's seat." Semel highlighted Yahoo!'s recently redesigned front page, its beta launch of a customizable My Yahoo! page through RSS feeds and a personalized search engine, and Yahoo! Local's formal introduction to the Yahoo! Search and front pages as evidence of this. He said the full range of products and services will create a "self-reinforcing cycle" of consistent revenue.

The company also raised its outlook for the fourth quarter 2004. It expects to generate between $710 and $760 million in the fourth quarter, and $2.5 billion and $2.57 billion for the full year.

eMarketer, an Internet marketing research aggregator, expects that by the end of the year, Yahoo! revenue will account for more than 20 percent of the U.S. online advertising market, and 35 percent of paid search.

"If it hadn't bought Overture last year," eMarketer Analyst David Hallerman said, "that wouldn't be the case." Hallerman said Yahoo!'s revenues are a significant weathervane for the Internet marketing industry because "it has its fingers in both pies."

eMarketer pegs Internet advertising revenue at $9.4 billion for the year; forty percent of this figure will come from paid search. Hallerman expects Yahoo! to account for 35 percent of the "imbalanced" search market, and Google to account for 50 percent.