Strong Holiday Season Buoys Yahoo

Beleaguered Internet giant Yahoo posted better-than-expected fourth-quarter earnings Tuesday, partly as a result of stronger brand advertising revenue during the holiday season. The company also said that most of its U.S. search advertisers had converted to its new "Panama" search marketing platform, but that revenue gains from the new system wouldn't appear until the second quarter of 2007.

For the quarter ended Dec. 31, Yahoo net income fell 61% from a year ago to $269 million, or 19 cents a share. The steep decline resulted in part from $56 million in stock option expenses. Quarterly revenue, excluding traffic acquisition costs, increased 15% to $1.23 billion.

The profit, excluding some one-time charges, of 16 cents per share exceeded Wall Street analyst estimates of 13 cents per share before the charges. "I'm pleased to report that we delivered financial results during the fourth quarter in line with our outlook," said Yahoo chairman Terry Semel. He noted that brand advertising had bounced back, with revenues from its 200 top display advertisers increasing 30% during the quarter. Categories including packaged goods, financial services and pharmaceuticals all showed strong year-over-year growth, said Semel.

Traditionally one of Yahoo's strengths, a slowdown in display ad growth in the financial services and auto marketers during the third quarter pushed down its stock price and led to lower-than-expected earnings. During the fourth-quarter conference call, Semel described the third-quarter results as "almost an anomaly" for its brand advertising business.

While search advertising grew only modestly during the fourth quarter, Yahoo expects the full rollout of Panama during the first quarter of 2007 to show revenue starting in the second quarter of this year and hit double-digit growth by the second half of 2007. Semel said that the implementation to date has "received an overwhelmingly positive response from customers of all sizes, and we're pleased with the level of advertiser engagement with our new features."

Yahoo also announced Tuesday that it would launch a new search ranking model for the system that returns results based on quality in addition to keyword bid price. Until now, search ads on Yahoo have been ranked solely by bid price. The new technology is aimed at helping Yahoo catch up with search leader Google, which already ranks ads based partly on their quality.

Market research firm eMarketer released data Tuesday forecasting that Google would capture 66.6% of search ad revenues in 2007 compared to only 15% for Yahoo. Based on reported earnings through the third-quarter of 2006, eMarketer also predicts that Yahoo's share of total U.S. Internet advertising will remain flat at about 17% this year while Google's will rise 3.6 percentage points to about 28%.

Safa Rashtchy, a senior research analyst at Piper Jaffray, also pointed out in a research note issued Monday that Panama would only put Yahoo on par with Google's search monetization from several years ago. He said that Yahoo will have to continue to "tweak" the search engine over time to increase monetization each quarter.

In relation to the company's organizational overhaul last month, Semel said that the search for a new CFO had begun, but that Sue Decker would remain in that position until a new one is hired. Under the restructuring in which Yahoo reshuffled top executives, Decker is to become head of a new unit that will oversee advertising.

Semel also reiterated the company's commitment to focus on expanding its offerings and ad inventory in video, social networking and mobile communications. Among initiatives during the quarter, he pointed to Yahoo's acquisition of contest site Bix and MyBlogLog, a social networking site for bloggers and blog readers. In the wireless arena, Yahoo last month launched the new version of its Yahoo Go For Mobile service and a new mobile-friendly search service.

For the first quarter of 2007, Yahoo is expecting revenues of $1.12 billion to $1.23 billion, excluding acquisition costs--and for the fiscal year, revenues between $4.95 billion and $5.45 billion. Both the quarterly and fiscal 2007 forecasts fall below Wall Street consensus estimates.

Next story loading loading..