Yahoo Revenue Falls Short Of Expectations

Carol-Bartz

Weaker-than-expected revenue growth for Yahoo in the third quarter will not ease the pressure on CEO Carol Bartz to deliver improved results nearly two years after she was brought on to reverse the Web portal's sagging fortunes.

A reduced fourth-quarter revenue outlook from Yahoo won't help, either. Yahoo is projecting fourth-quarter revenue of $1.125 billion to $1.225 billion, falling below the analysts' forecast of $126 billion, according to Thomson Reuters.

For the third quarter, Yahoo posted a profit of $396.1 million, or 29 cents a share -- more than double the 13 cents it reported a year ago. But its earnings got a 13-cent boost from the sale of its HotJobs classified site during the quarter. Analysts had expected profit of 15 cents a quarter.

Net revenue was $1.12 billion compared to $1.13 billion a year ago, and came in slightly below analysts' forecast of $1.13 billion. Yahoo's stagnant results and internal turmoil have led to a series of takeover and other rumors in recent weeks.

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The Wall Street Journal earlier this month reported that AOL and several private equity firms were exploring making a bid to buy Yahoo in an effort to merge the two struggling Internet brands. Speculation has also arisen that if Bartz doesn't improve the company's performance soon, the Yahoo board may consider replacing her.

A Dow Jones report Monday, however, indicated that the board is committed to Bartz for the remaining two years of her four-year contract. In relation to the takeover rumors, Bartz declined to comment on the matter during Yahoo's third-quarter conference call Tuesday. "We like our strategy, we like our progress, and that's what we're focused on," she said.

Despite a 7% year-over-year drop in search ad revenue to $331 million, Bartz and Yahoo CFO Tim Morse emphasized that the implementation of its 2009 search partnership with Microsoft was on schedule and would begin to boost revenue growth next year.

Yahoo last month completed transitioning to Bing-powered natural search results in the U.S. and Canada and would do the same for paid results by the end of October. Bartz said 97% of premium accounts have switched to Microsoft's AdCenter and the company is more than halfway through shifting its search queries to AdCenter. "By Q2 next year, we expect the [search] marketplace to be fully tuned," she said.

In the meantime, the process of integrating search systems with Microsoft isn't helping Yahoo's top line, and starting next quarter Microsoft will take its 12% revenue share under the deal. Morse said that will amount to about $30 million in the fourth quarter.

Yahoo's core display business fared better, with revenue up 17% to $465 million from a year ago and roughly flat from the second quarter. Premium display revenue was up 20% and spending was up in seven of 10 industry categories Yahoo tracks, with retail and technology especially strong and telecom notably weak.

Asked during the Q&A session with analysts about growing competition from Google in display, Bartz responded that Yahoo had a unique offering in its ability to deliver targeted, high-profile campaigns for large brand advertisers. "We're running very fast -- we're not going to give up this leadership in display very easily," she said.

Discussing a 4% drop in page views in the quarter, the Yahoo CEO did not directly explain the decline, but stressed the company was focused on upgrading its platforms for popular services like mail and news over the last year to facilitate increased user engagement. An outage of the Yahoo home page last week, however, did nothing to enhance the company's reputation for technical prowess.

Bartz also did not directly address a recent spate of high-level executive departures reminiscent of the management turmoil when she was hired, in part to quell after taking over from then-CEO Jerry Yang.

Hilary Schneider, the company's U.S. ad sales chief; David Ko, who led the mobile and local businesses; and Yahoo Media head Jimmy Pitaro have all exited in the last few weeks. Last spring, Yahoo hired former Microsoft executive Blake Irving as its chief product officer to bolster its content and ad offerings.

But in an apparent reference to the management changes, Bartz said: "Some people leave, some get promoted, and some good new people arrive. The most important thing is making sure the right person is in the right job at the right time."

That's something Yahoo's board is reportedly scrutinizing more closely when it comes to Bartz herself. But once Yahoo's search pact with Microsoft is fully up and running, and display continues steady growth, "we've got a completely new company here," she assured. Yahoo's shares were up 1% to $15.65 in after-hours trading Tuesday.

1 comment about "Yahoo Revenue Falls Short Of Expectations ".
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  1. Jonathan Mirow from BroadbandVideo, Inc., October 20, 2010 at 12:02 p.m.

    Shocking - but truth be told, I have the homepage of about 18 systems here at the office set at Yahoo. Why? Because it loads all kinds of crap (javascript, flash, html, fancy css code - etc.) in other words, when I turn a system on and see Yahoo load correctly - I know we're set to jet. For search, however, I must confess that we generally Google it. It's funny - Yahoo never made it to that phrase phase ("Mapquest it", "Google it")...maybe "Yahoo it" just brings up visions of banjos and Burt Reynolds in a wetsuit. I don't think the Howlin' Hillbilly Theme Song helped any. Investors are squealing like pigs. Enough...

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