Yahoo Moves Into Profit Territory
Reflecting a slow and steady shift amid the rubble of the dot-com collapse, media giant Yahoo Inc. on Wednesday posted a slim profit after six consecutive quarters of losses.
The turnaround validates moves by Chief Executive Terry Semel, who has struggled to reduce the Internet portal’s reliance on advertising and to implement fees for many of the site’s most popular services. Analysts said that Yahoo had navigated the worst of a disastrous period and that the Internet economy appeared to be rebounding, albeit slowly.
Yahoo reported second-quarter net income of $21.4 million, or 3 cents a share, contrasted with a loss of $48.5 million, or 9 cents a share, in the year-earlier period. The company said revenue rose to $225.8 million from $182.2 million.
“We turned a corner, and we are feeling really optimistic as we look ahead,” Semel told analysts during a conference call.
But Semel, former co-CEO of Warner Bros., failed to comfort some Wall Street watchers. Although analysts predict that the company would turn a profit of 19 cents a share in 2003, Yahoo today is trading at about 68 times next year’s earnings.
“Here’s a company that’s still struggling at its core, and the valuation is completely irrational,” said James R. Preissler, director of Digital Media Research. “This is a company that has grown its core business as far as it can and has put toes into a lot of different pools. If Yahoo wants to succeed, it has to identify one area and truly invest in it. There are growth options here. But what are they?”
After hemorrhaging dot-com advertisers that fueled its growth in the late 1990s, Yahoo has cut costs recently by shutting Yahoo Radio and the Finance Vision service, which made financial news television shows broadcast over high-speed Internet connections.
At the same time, Yahoo has instituted fees for many of its services, such as its auction and online personals, and rebuilt its ad- vertising base with both small businesses and old-school large industries.
One path of growth could be through its listings business unit, as with the acquisition this year of Web employment firm HotJobs. The deal helped boost Yahoo’s paid premium services to $74.1 million, the company said.
Another big push will be in its marketing services, company executives said. Even though Yahoo reported $135.7 million in marketing services revenue--a 4% drop from the same time last year--Semel insisted that business would boom in the coming quarters.
Part of the reason, Semel said, is the company’s decision to get into sponsored searches with Pasadena-based Overture Services.
The deal, which gave Yahoo the bulk of its advertiser base of 70,000, provides pay-for-performance searches: Advertisers bid for placement in the search listings, which usually appear as “sponsored sites,” and pay Overture--and in turn its partners, such as Yahoo--when someone clicks on the links.
It’s a strategy that has been seen as necessary as search engines have encountered tough times.
Semel told analysts that he expected double-digit growth in Yahoo’s marketing services for the second half of 2002 compared with the same period last year.
Yahoo’s news, which boosted tech stocks, helped bump its shares to $12.85 in after-hours trading on Nasdaq. The stock had fallen 51 cents, to $12.19, during regular trading.
