Yahoo Earnings Beat Street

Web portal and search engine giant Yahoo on Tuesday posted fourth quarter results that beat Wall Street estimates, despite a sharp drop in profit from a year earlier, and said that its long-awaited ad placement system upgrade would roll out a month ahead of schedule.

Yahoo said revenue climbed 13 percent to US$1.7 billion for the quarter that ended in December. With the cost of traffic acquisition removed, the firm said it brought in $1.3 billion, a 15 percent increase.

Profit was sharply lower, however, falling 61 percent to $268.7 million, though much of that was attributed to changes in stock options expensing and one-time gains made during the previous year. The company’s profit figures still exceeded analyst forecasts by 3 cents per share.

Reversing a Trend

CEO Terry Semel said he was “pleased with the progress made in the fourth quarter.”

“We successfully addressed many of the challenges we faced in the third quarter and made aggressive moves to deliver on a number of strategic goals that we set forth for the organization,” Semel said. “I am confident that our new structure and concentrated focus on Yahoo’s key priorities puts us in the best position to take advantage of the many opportunities that we see ahead.”

The results seemed to offer the possibility of halting a trend that began early in 2006, in which Yahoo posted weak quarterly results while main rival Google continued to show strong revenue and profit growth.

Yahoo’s new online ad platform, known as “Panama,” has long been considered a key to reversing that trend and enabling Yahoo to gain more traction in the search advertising space.

Panama Ahoy

Yahoo also said Tuesday it now expects to have the enhanced search placement system, which includes a new self-service interface for bidding on ads and a new system that ranks search relevancy.

Many U.S.-based advertising customers have already begun to use Panama and will migrate to the new system by the end of the second quarter, Yahoo said.

The same system will be rolled out in overseas markets starting in the second quarter.

Panama has long been billed as a major aid in Yahoo’s efforts to compete with Google and also gives it some of the same capabilities of Microsoft’s new AdCenter.

Because it displays ads more prominently on search results pages and because it is meant to offer more targeted ads, Yahoo believes it will generate more revenue with Panama in place.

Yahoo predicted the amount of revenue derived from each search query could climb by 10 percent, with results starting to show up in the second quarter.

There could be an even bigger payback for Yahoo, as advertisers are expected to invest more money into the portal’s search ad system based on results from more focused ad placement.

Looking Ahead

Yahoo’s outlook, meanwhile, got mixed reviews from analysts, with some saying that despite the increased revenue thanks to Panama, the company’s forecast was still conservative.

First quarter revenue of $1.12 billion to $1.23 billion was below analyst forecasts that were already on the street before Yahoo’s announcement. Full-year sales of $4.95 billion to $5.45 billion also dropped below the $5.47 billion consensus forecast.

Nonetheless, investors appeared focused on the positive Panama news — Yahoo shares were up by more than 6 percent in morning trading Wednesday, to $28.72, which is spreading optimism to other Web stocks. Both Google and eBay saw shares up by more than 2 percent.

Panama may only help level the playing field slightly for Yahoo, since the system has capabilities that Google has been offering for some time, Piper Jaffray analyst Safa Rashtchy said in a research note.

It was likely that Yahoo could find ways to improve the platform in order to boost search monetization in coming quarters, he added.

Another reason for the upbeat response may have been Semel’s comments in a conference call, that brand advertising had rebounded strongly in the fourth quarter.

Earlier last year, Yahoo said it was seeing erosion of growth in key areas of consumer focused advertising, but Semel said revenues from the 200 largest display advertisers rose 30 percent during the quarter.

Retaining Market Share

However, Yahoo may still be fighting to retain, rather than win back, market share. eMarketer said it believes Google will capture 67 percent of search ad revenues in 2007, to just 15 percent for Yahoo.

Nielsen//NetRatings, meanwhile, said fourth quarter traffic to many of Yahoo’s properties increased, with a nearly 200 percent jump in visits to Yahoo Video and a 66 percent increase in traffic to Yahoo Autos. Overall, Web traffic to Yahoo sites was up 6 percent, to 110.1 million unique visitors per month in the quarter, the firm said.

Sterling Market Intelligence analyst Greg Sterling noted that Yahoo CFO Sue Decker — who will soon leave that post to head the company’s advertising business — sounded a fairly conservative tone in looking ahead for Google.

Yahoo has areas to build on as it wars with Google and, to a lesser degree, Microsoft, including strong foundations in local search and mobile search, which could be a key to unlocking the value of local search, Sterling said.

Yahoo scored a victory when Google shut down its live-answer service — Yahoo Answers now garners more than 90 percent of open ended search query traffic, which may be important in social networking settings, he added.

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