Yahoo Profit Quintuples in 4th Quarter
The boom in online advertising and expansion overseas helped Yahoo Inc. quintuple its profit in the fourth quarter, the company said Tuesday.
The stock market success of one of Yahoo’s biggest competitors also was a factor, because Yahoo sold a chunk of its stake in search-engine rival Google Inc. for an average $186 a share. That alone doubled Yahoo’s quarterly profit.
The Sunnyvale, Calif., Web giant faces heavy competition from Google and other Internet companies, but analysts and Yahoo executives said advertisers were shifting their marketing dollars from traditional media outlets so rapidly that there was plenty to go around.
Yahoo Chief Executive Terry Semel said the Internet industry reached “the tipping point in advertising” in 2004, with search-related advertising budgets continuing to balloon and the biggest Madison Avenue clients boosting their spending on Yahoo to promote brand-name products.
Across the industry, advertisers spent $8.4 billion online in 2004, or 4.1% of all marketing dollars, according to JupiterResearch.
The research firm predicted that spending on Internet ads would reach $13.8 billion, or 6% of all ads, by 2007, surpassing magazine advertising.
Ads helped Yahoo post net income of $373 million, or 25 cents a share, up from $75 million, or 5 cents, during the fourth quarter in 2003.
It attracted 165 million users in the quarter, up 24%.
“It’s clear that Yahoo continues to fire on all cylinders,” said Derek Brown, an analyst with investment bank Pacific Growth Equities. “They seem to be in the sweet spot on a number of very significant marketplace and economic trends, and they’re executing on the opportunities in front of them.”
The sale of 1.7 million Google shares boosted Yahoo’s profit by $185 million, or 13 cents a share. It was the second consecutive quarter in which Google’s rising stock price helped its older competitor. Yahoo still owns 4.2 million Google shares, acquired through an early investment in the onetime partner it’s now challenging for the loyalty of search-engine users.
“We were helpful to them in their early days, and we’re pleased that the shares of the company we received early on turned out to be so profitable,” Semel said in an interview. “In a way, they’re helping to finance a big competitor.”
Revenue at Yahoo reached $1.1 billion, a 62% rise. Excluding fees it paid to advertising partners, sales were $785 million, compared with $511 million.
The greatest growth was in overseas sales, which soared 156% in the fourth quarter to $302 million. Yahoo’s domestic business grew 42%.
For the full year, Yahoo earned $840 million, or 58 cents a share, compared with a profit of $238 million, or 18 cents a share, in 2003. Without the Google stock sale, Yahoo would have earned $526 million, or 36 cents a share. Sales more than doubled to $3.6 billion from $1.6 billion.
Much of Yahoo’s growth came from its expansion overseas, which it fueled through acquisitions of companies such as Kelkoo, a European comparison shopping service, and Chinese firm 3721 Network Software Co.
Semel said Yahoo would be more aggressive in its international businesses this year, with an eye toward more partnerships and acquisitions. Chief Financial Officer Sue Decker said international revenue would jump to 25% of Yahoo’s overall sales this year from 22% in 2004.
Decker forecasted 2005 revenue, excluding fees paid to advertisers, of as much as $3.6 billion, outpacing analysts’ consensus estimate of $3.4 billion.
Yahoo shares gained 48 cents to $37.18 on Nasdaq before the earnings release. The stock rose 60 cents more after hours.
