Yahoo Beats Expectations
Internet bellwether Yahoo Inc. announced earnings Wednesday that slightly bettered Wall Street’s modest expectations. The company announced pro forma profit, excluding one-time gains and losses, of about $9 million, or 1 cent per share, on revenue of $182 million.
On average, analysts polled by First Call/Thomson Financial had expected flat earnings.
“This was a necessary first step--making the revenues and the estimates in a tough environment,” said Safa Rashtchy, an analyst with U.S. Bancorp Piper Jaffray. “The worst is over.”
He added that only 26% of Yahoo’s advertisers now are “pure-play” Internet companies--reducing Yahoo’s vulnerability to a further collapse of the dot-com sector.
Pro forma earnings a year earlier were $69 million, or 11 cents per share, on revenue of $273 million. Yahoo’s net loss of nearly $49 million, including charges related to previously announced layoffs, compared with net income of about $53 million in the period a year earlier.
The company projected flat earnings on revenue of $160 million to $180 million in the next quarter but said visibility further out remained poor--a factor contributing to rampant pessimism among other experts.
“Beating numbers after you’ve lowered them twice is hardly a major accomplishment,” said Arthur Newman, an analyst with the investment bank ABN Amro. He has a “reduce” rating on Yahoo stock.
A leading Web destination, Yahoo has been hit hard in the last year by a disastrous advertising slide. Yahoo collects about 80% of its revenue from ads and related services. Terry Semel, Yahoo’s new chief executive, acknowledged in his first earnings conference call with analysts that the ad market may not improve for another year.
“That’s an awfully long time to wait,” Newman said.
Once viewed as arrogant by advertisers and agencies alike, Yahoo has begun to show openness and flexibility, a change that some analysts say will help it stave off further erosion in ad revenue.
Yahoo faces increasing pressure to generate revenue from fee-based services, such as custom Web portals for corporations, auction listings and soon, music subscriptions. With customers used to getting almost everything online for free, such services have yet to take off.
John Corcoran, an analyst with CIBC World Markets, visits Yahoo every day for free services, as do a multitude of other users. “Have they been able to separate any of the dollars from my wallet? No,” he said.
Other analysts concurred.
“The reality is that they have no significant consumer premium services now, and there is little evidence that consumer premium services are viable anywhere on the Web,” Newman said.
He doubts that music subscriptions will be a profit center soon, despite Yahoo’s recently announced plan to acquire online music provider Launch Media.
Semel did not introduce any new initiatives in the earnings announcement but said his first goal has been to stabilize the company.
“My ambition is not to do something totally dramatic,” he said in an interview, “but to evolve Yahoo into a much more financially successful company.”
He declined to specify his top priorities for creating profitable services but said Yahoo will be looking at new partnerships and joint ventures.
“Judge the report card a year or two later,” he added, although he acknowledged that investors probably aren’t willing to give him that much time.
Merrill Lynch analyst Henry Blodget predicted in a recent research report that if Yahoo cannot restore 30% revenue growth--a goal that appears distant at the moment--its stock will dive further and it will be acquired by another company.
Sunnyvale, Calif.-based Yahoo’s stock fell 80 cents on Wednesday to close at $17.03 in Nasdaq trading ahead of the earnings announcement. In after-hours trading, Yahoo shares rose to $19.35.
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Yahoo shares jumped $2.32, or 14%, to $19.35 in extended trading on news of the company’s slightly better-than-expected earnings. Yahoo had closed off 80 cents at $17.03 on Nasdaq.
Yahoo, weekly closes and latest on Nasdaq
Wednesday after-hours trading: $19.35
Source: Bloomberg News
