Ad Rebound Lifts Yahoo Profit
The comeback in Internet advertising helped Yahoo Inc. double its second-quarter profit, and the third-largest Internet portal said Wednesday that it saw no immediate end to its resurgence.
The Sunnyvale, Calif., company raised its full-year sales and earnings forecasts for the second time in three months, though the boost was less than Wall Street had expected and its shares fell nearly 12% in after-hours trading.
Yahoo is the first of the major Internet companies this month to report second-quarter results. They are expected to benefit from rising online ad rates and heavier consumer use of the Web, even though the quarter began with a rash of profit warnings from software and chip firms.
Yahoo continued to prosper from its acquisition last year of Overture Services’ search-related advertising business and from the recovery in banner ads. It reported net income of $113 million, or 8 cents a share, compared with $51 million, or 4 cents a share, during the comparable period last year. Sales more than doubled to $832.3 million from $321.4 million.
“Yahoo is clearly on the move,” Chief Executive Terry Semel said.
The results matched analysts’ expectations, but many had hoped for even better results and a rosier outlook.
Yahoo shares, which had risen 35% since the company reported first-quarter earnings in April, fell 62 cents in regular Nasdaq trading Wednesday to $32.60. In after-hours trading following the earnings release, the stock dropped to $28.75.
David Garrity, an analyst with New York-based brokerage firm Caris & Co., said investors were probably disappointed that Yahoo left its third-quarter forecast unchanged and only slightly boosted its full-year guidance, so they sold their shares to profit from the stock’s recent run-up.
Yahoo shares some of its revenue with websites that display Overture ads. Excluding those “traffic acquisitions costs,” Yahoo had sales of $609.1 million. That’s a 90% rise from the second quarter of 2003, before Yahoo acquired Overture.
On that basis, Yahoo said it expected revenue of $2.46 billion to $2.54 billion for the year, up from an April forecast of $2.41 billion to $2.52 billion.
Garrity said Yahoo seemed “very, very well positioned” to take advantage of rising Internet advertising budgets after doggedly courting Madison Avenue in the three years since Semel took over as CEO.
“They’ve been sowing the seeds and should be able to pick the fruit in the next 12 to 18 months,” Garrity said.
That’s already happening, Yahoo said. Semel told analysts in a conference call that 90% of Yahoo’s 200 biggest advertisers from the first quarter bought ads in the second quarter.
In an interview, Yahoo Chief Operating Officer Dan Rosensweig said Yahoo was showing strength in all the ways it measured advertising gains, including the number of advertisers, the percentage that became repeat customers, the dollar value of their ad buys and the rates they paid.
With 97.4 million individual visitors to its websites in May, Yahoo is the third-largest Internet portal, behind MSN parent Microsoft Corp. and America Online owner Time Warner Inc., according to market research firm Nielsen/NetRatings.
Analysts asked Semel about the growing threat from MSN, which said last week that it planned to within a year dump Yahoo’s search engine in favor of a homegrown replacement. Microsoft said it would continue using Overture to place search-related ads for the near future, but analysts worried that Microsoft might not want to share those advertising profits with Yahoo forever.
Google Inc., which operates the most popular search engine, a thriving search-related advertising business and a fledgling Web-based e-mail service, also poses stiff competition.
But Semel shrugged off questions about its rivals. “We are thriving with competition,” he said. “It only makes us better.”
Yahoo is generating much more cash -- its free cash flow soared to $194 million in the second quarter from $71 million at the end of the first quarter.
Nevertheless, Yahoo said it had less money in the bank than it did a year earlier. Acquisitions left the company with $2.65 billion in cash and marketable securities, down from $2.79 billion at the end of the second quarter in 2003.
Yahoo saw mixed success in growing some smaller parts of its business in the second quarter. It persuaded 6.4 million people to pay for Internet access or premium services such as ad-free e-mail, up from 3.5 million a year earlier. Revenue from such fees rose 49% to $103.9 million. But Yahoo’s listings business, including its HotJobs classifieds service, stalled, with sales rising only 17% to $37.8 million.
