Yahoo’s Profit Doubles as Ad Sales Take Off

Yahoo Inc. said Tuesday that its first-quarter profit more than doubled, as companies ranging from mom-and-pop stores to the world’s biggest brands spent more to advertise on its websites.

Yahoo also raised its sales forecast for the full year. Its shares rose 67 cents, or 2%, to $33.22 on Nasdaq, then gained an additional 5%, rising as high as $34.90, in after-hours trading.

Solid earnings from the biggest online media company signaled that the heady growth of Internet advertising was likely to continue as major advertisers shifted more of their marketing dollars to the medium, analysts said. Nearly 90% of Yahoo’s revenue comes from display ads -- such as banners and streaming video -- or text ads delivered alongside search results.

“It was a very strong quarter,” said Jeffrey E. Keene, senior equity analyst with Zacks Investment Research. “We continue to see solid momentum within this industry. Yahoo looks like it’s taking market share from traditional advertising.”

Sunnyvale, Calif.-based Yahoo earned $204.6 million, or 14 cents a share, in the first three months of the year, compared with $101.2 million, or 7 cents a share, in the same period last year. The sale of some investments boosted profit by a penny a share, but the results still surpassed analysts’ expectations.

Revenue rose 55% to a record $1.17 billion, from $758.8 million.

While its advertising business, which generated more than $1 billion, dominated the earnings picture, Yahoo also showed strong results in other areas. Fees paid by 8.9 million of Yahoo’s 176 million active users -- for offerings such as fantasy football, small-business listings and broadband access bundled with Internet services -- rose 61% to $148.9 million in the quarter.

Analysts said Yahoo’s results bode well for Google Inc., which reports its first-quarter earnings Thursday. Some had worried earlier this year that search-related advertising, which fueled most of Google’s growth last year, had cooled off more than they had expected after the winter holidays.

Yahoo executives suggested Tuesday that revenue growth came from both search and display ads, though they would not provide a detailed breakdown. “Both of our advertising businesses were very strong,” said Chief Executive Terry Semel.

Goldman Sachs analyst Anthony Noto estimated that Yahoo’s paid search revenue rose 56% and display advertising revenue increased by 46%.

Susan Decker, Yahoo’s chief financial officer, said the number of advertisers buying sponsored search ads and the revenue generated per ad both increased.

“We’re seeing broader and deeper industry adoption of paid search,” she said.

But during a conference call with Yahoo executives, some analysts sought reassurance that scams weren’t threatening the growth of paid search. Some industry observers have raised concerns recently about “click fraud” -- clicking on a competitors’ ads to drain their advertising budgets, or clicking on ads on one’s own site to artificially boost revenue.

“In any emerging and dynamic marketplace these kinds of obstacles and issues are inevitable,” Dan Rosensweig, Yahoo’s chief operating officer, said in response to an analyst’s question. “It’s not a big issue at this point. We’ve been able to contain it.”