Yahoo Beats 4Q Expectations, But Revenue Still Down

Carol Bartz

Yahoo's revenue declined for the fifth straight quarter, but the fourth-quarter drop of 8% was an improvement over the prior three months as the Web portal benefited from resurgent ad spending.

For the quarter, Yahoo posted net revenue of $1.26 billion, down from $1.38 billion a year ago. Analysts had expected $1.23 billion. Net income was $153 million, or 11 cents a share, compared with a loss of $303.4 million, or 22 cents, a year earlier. Profit was in line with analyst estimates.

"Overall, things seem to be returning to a more normal state in the online ad business," said Yahoo CEO Carol Bartz in a conference call with analysts Tuesday. Bartz and Yahoo CFO Tim Morse each emphasized quarterly gains in both display and search advertising in the fourth quarter, even as year-over-year sales continued to decline.

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Display revenue from Yahoo's own sites was $503 million -- down only 1% from the year-earlier period, compared to an 8% drop, or $399 million, in the third quarter of 2009. That was better than some analysts expected. While Morse acknowledged that the fourth quarter is seasonally strong, he said both premium and "non-guaranteed" advertising had continued to pick up in the period.

He also noted that pricing for some of Yahoo's key properties had returned to 2008 levels in the quarter. "Advertisers bid up the price of non-guaranteed placements due to the scarce availability of premium guaranteed buys," said Morse.

Retail, consumer products and telecom were among the strongest display ad categories last year, with autos flat. Entertainment and finance spending fell from a year ago.

On the revenue side, search revenue of $370 million was down 15% from a year ago, but improved 4% from the prior quarter -- the first quarterly increase since the third quarter of 2008, and in line with expectations. Yahoo credited improvements in its search technology for the quarterly improvement, resulting in an 8% gain in revenue per search globally.

When it comes to query volume, however, Yahoo continues to lose ground. Yahoo's search share has dropped to 17.3% from 20.1 percent between May and December, according to comScore. Meanwhile, following the launch of its Bing search engine last June, Microsoft's share has grown from 8% to 10.7%, and Google still claims a commanding 65.7% portion of U.S. search queries.

The search giant reported another strong quarter last week, with revenue jumping 17% to $6.7 billion.

Yahoo reiterated Tuesday that it expects its search partnership with Microsoft, announced last summer, to close in early 2010, although revenue-sharing from the alliance will not begin until the following year. Under the deal, Microsoft's Bing will power search on Yahoo and both companies will split related ad revenue.

Yahoo said it took $32 million in charges for advisory and retention costs in the quarter in connection with the Microsoft transaction.

In relation to the $100 million rebranding blitz the company debuted last fall, Bartz said the next phase of the campaign will focus on particular Yahoo properties and services like the home page and search rather than on boosting overall brand awareness. She said the campaign, especially outside the U.S., has increased engagement and traffic growth, although she did not offer specifics to back that up.

To the relief of many Yahoo users, Bartz also announced that as of Tuesday night, it was doing away with the annoying "hover feature" on the home page-- making advertisements pop up when someone hovered over apps featured in the My Favorites section. The default setting will now require a click to activate an app preview.

Among broader changes, Bartz said the company had restructured its international operations after an unsuccessful search to find a new head of the unit. As a result, international ops will be reorganized into three regions -- Americas; Europe, Middle East and Africa; and Asia Pacific -- with Emerging Markets cutting across each.

Regional heads will report directly to Bartz. Emerging Markets head Keith Nilsson will take the new post of Global Initiatives SVP, also reporting in to her.

After leading restructuring and cost-cutting efforts in her first year as CEO, Bartz said that 2010 "would be about acquisitions and investments to make Yahoo even stronger." Potential deals would fall into three categories: small to medium deals for technology and talent; content plays to gain new audiences and communities; and acquisitions to enter new geographic markets.

Looking ahead, Yahoo said it expects gross revenue for the first quarter of 2010 to be in the range of $1,575 million to $1,675 million, and income from operations to fall between $90 million and $110 million. Yahoo shares closed Tuesday at $15.99, but were trading up in after-hours trading, at about $16.50.

1 comment about "Yahoo Beats 4Q Expectations, But Revenue Still Down".
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  1. Jonathan Mirow from BroadbandVideo, Inc., January 27, 2010 at 1:03 p.m.

    "Revenue still down" - because Google is kicking their ass and is will soon be on most cell phones (except iMoonies, of course). Perhaps they should hire a "thought leader".

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