Yahoo Lifts Forecast as Sales, Profit Soar

A revival in online advertising and a prescient investment in Google Inc. produced sharply higher sales and profit for Internet bellwether Yahoo Inc. in the third quarter, the company said Tuesday.

With its net income nearly quadrupling and revenue more than doubling from the same period last year, Sunnyvale, Calif.-based Yahoo hiked its revenue forecast for the full year.

“This medium is coming of age as a significant advertising platform,” said Chief Executive Terry Semel, whose sentiment was echoed by analysts.

The leading Internet portal posted net income of $253 million, or 17 cents a share, up from $65 million, or 5 cents, during the same period last year. Profit was boosted by the $129-million gain Yahoo realized by selling 25% of its stake in search engine pioneer Google during its Aug. 19 initial public stock offering.

Sales jumped to $907 million from $357 million in the third quarter of 2003. The bulk of those gains came from selling online banners and ads targeted to search-engine results.

Yahoo was the first major Internet company to issue earnings since the crop of disappointing results in the second quarter.

Along with Amazon.com Inc., EBay Inc., Ask Jeeves Inc. and others, Yahoo had reported respectable profit for that quarter, but the companies’ forecasts for the rest of the year disappointed investors. In particular, Wall Street was spooked by evidence that the booming market for search-related ads was starting to follow seasonal patterns of ups and downs -- a potential sign of a maturing market.

As a result, Internet stocks fell sharply and stayed in a funk for seven weeks until Google’s IPO jump-started the sector.

A guiding light for Internet advertising, Yahoo is expected to rake in 20% of the $9.4 billion expected to be spent on online ads this year, along with 35% of the $4 billion forecast to be spent on paid search this year, according to research firm EMarketer.

“The rumors of Yahoo’s maturity were premature,” said David Garrity, an analyst at Caris & Co., a San Diego-based investment bank. “The results underscored very clearly for investors that Yahoo is a growth company.”

Yahoo shares, which rose 21 cents Tuesday to $34.23 in regular Nasdaq trading, gained an additional 55 cents after the results were released. The shares have jumped 20% since Google’s IPO reinvigorated the market.

Advertisers keep moving more of their dollars to the Internet from print and television, analysts say. Sales in Yahoo’s advertising business, known as marketing services, more than tripled to $765 million, thanks in large part to its acquisition last year of Pasadena-based Overture Services Inc.

Yahoo shares some of its revenue with websites that display Overture ads. Excluding those “traffic acquisition costs,” Yahoo had sales of $655 million. That’s an 84% rise from the third quarter of 2003 -- a smaller gain than 90% in the second quarter. On that basis, Yahoo said it expected revenue of $2.52 billion to $2.57 billion for the year, up from a July forecast of $2.46 billion to $2.54 billion.

Yahoo saw much more modest gains in its smaller businesses. Revenue from offerings such as Internet access and premium e-mail rose 31% over the same period last year, and sales from listings on HotJobs and other services rose 15%. Both segments were essentially flat from the second quarter.

But Yahoo is growing rapidly where it really counts, analysts said.

“When push comes to shove, Yahoo has been, is and will continue to be driven by the advertising that’s done on its site,” said Derek Brown, a research analyst at San Francisco-based Pacific Crest Securities. “For right now, that business is a very good place to be, and Yahoo is doing a phenomenal job capitalizing on that.”

Yahoo added about 500 jobs during the third quarter and now employs more than 7,000 people. With the company generating more than twice as much cash as it did last year, executives said they planned to do more acquisitions and buy back more stock in the coming year. They would not identify potential acquisition targets.

Also Tuesday, Yahoo got the go-ahead from antitrust authorities at the Federal Trade Commission to complete its planned $160-million acquisition of Musicmatch Inc., a San Diego-based service for streaming and downloading digital songs.

Yahoo Chief Financial Office Susan Decker said she expected the deal to close in the current quarter.