Yahoo loss toughens Bartz’s task
Yahoo Inc. reported a $303-million shortfall Tuesday, its first quarterly loss since 2002, as the struggling Internet company took charges to acknowledge the shrinking value of its business.
Cutbacks by advertisers, especially on Web banners, hurt Yahoo’s revenue, which also dropped for the first time in seven years.
Eight days into her new job, Yahoo Chief Executive Carol Bartz warned analysts during a conference call that tough times would continue. But before the presentation, as required by law, Yahoo’s head of investor relations read the list of risk factors -- things that could go wrong for shareholders and depress the stock even further.
“I should have understood all those risks before I took this job,” Bartz quipped.
The moment of levity was short-lived. The continued deterioration of Yahoo’s business in the fourth quarter, the last under former CEO Jerry Yang’s watch, made Bartz’s assignment even tougher.
The Sunnyvale, Calif., company reported a net loss of $303 million, or 22 cents a share, compared with a profit of $206 million, or 15 cents, a year earlier. Revenue fell 1% to $1.81 billion.
Still, investors had braced for worse. Yahoo’s stock rose more than 5% to $11.95 in after-hours trading, after closing up 1.5% to $11.34 in regular trading before the earnings report.
If not for one-time charges that covered laying off 1,500 employees last month and adjusting the shrinking value of its European operations, Yahoo would have earned 17 cents a share, beating analyst estimates of 13 cents.
Yahoo said its revenue would have risen 3% if not for currency fluctuations. Net revenue, which leaves out commissions paid to advertising partners, totaled $1.37 billion, down from $1.4 billion a year ago but matching analyst estimates.
Yahoo’s outlook for the current quarter calls for revenue to decline as much as 16%. The company declined to provide a first-quarter profit forecast or guidance for the rest of the year, citing the uncertain economy.
“They are battening down the hatches for a long campaign,” Sanford C. Bernstein analyst Jeffrey Lindsay said.
Yahoo weathered a difficult year that included a takeover attempt from Microsoft Corp., a proxy fight from billionaire investor Carl Icahn, the collapse of a potentially lucrative partnership with rival Google Inc. and a cratering world economy.
Blake Jorgensen, Yahoo’s chief financial officer, said he was pleased with the company’s performance under such tough circumstances.
“We faced challenges in every aspect of our business,” he said in an interview. “We see this as step one in a long-term process.”
The blunt-talking Bartz gave few clues about that process during the call with analysts. When she took over for Yang, a Yahoo co-founder, she demanded that Wall Street stop pressuring the company to take bold steps and instead give it some “breathing room.” Analysts say she got what she asked for, judging from the softball questions and respectful tone Tuesday.
“This is like ‘CSI: Sunnyvale’ -- she is coming in to identify the cadaver,” Motley Fool analyst Rick Munarriz said. “But you can’t pin any of this on her. The market is going to give her another two to three quarters to see what she is capable of.”
Bartz denied speculation that she was hired to sell Yahoo. But she would not say whether she intended to pursue more radical options such as selling Yahoo’s search business to Microsoft or merging with the AOL Internet unit of Time Warner Inc.
“It’s my job to make sure we look at anything that makes sense for the company and creates long-term value for shareholders,” Bartz said.
Bartz and Yahoo Chairman Roy Bostock have had conversations with Microsoft CEO Steve Ballmer about the possibility of selling Yahoo’s search business. Ballmer has repeatedly said he would like to combine the two search businesses to take on market leader Google. Bartz and Jorgensen declined to comment on discussions with Microsoft or anyone else.
But Bartz did make clear she had examined the issue. She said the search business holds great value for Yahoo beyond the profit it generates.
“There are many different parts to search,” she said. “Some are easier to break apart, some aren’t.”
Search, which lets advertisers more effectively measure their returns, was the only bright spot for Yahoo in the quarter.
The leader in that field, Google, reported last week that its fourth-quarter revenue jumped 18%. Google handled 63.5% of U.S. searches in December to Yahoo’s 20.5%, according to ComScore Inc.
Yahoo is more vulnerable to the ad slowdown. The display market upon which the company relies more heavily is expected to grow about 5% this year while search advertising is expected to grow 10%, according to Susquehanna International Group.
Last year, display advertising jumped 18% and search advertising 25%.
Yahoo cut about 10% of its workforce late last year and could institute deeper cost cuts. Bartz has already frozen pay for many employees this year.
“Everything is on the table,” Bartz said, but added, “This is not a company that needs to be pulled apart and left for the chickens.”
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