Yahoo's earnings surpassed analysts' estimates

April 8, 2004

Yahoo reports that it more than doubled its first-quarter profits, largely through a big boost in advertising revenue.

Yahoo said profit for the quarter that ended March 31 hit $101.2 million, or 14 cents a share, compared with $46.7 million, or 8 cents a share, a year ago. Revenue was $757.8 million, more than double the $283 million reported for the same period last year.

Along with earnings, the company announced a two-for-one stock split, effective May 11, to make shares more affordable to investors.

Semel, who will celebrate his third year with the company in a few weeks, was audibly beaming on a conference call with analysts.

``I have a big smile on my face,'' he said. ``This is by far the most successful quarter in Yahoo history.''

For the second consecutive quarter, Yahoo has reported a revenue number that excludes ``traffic acquisition costs'' associated with its advertising subsidiary, Overture Services.

Overture shares its revenue with various partners, which use its advertising technology on their Web sites, such as Microsoft's MSN. Subtracting those payments, Yahoo's first-quarter revenue was $550 million.

As usual, ad revenue was the big driver for Yahoo, jumping 235 percent to $635 million. Revenue from fees for premium services jumped 39 percent to $88 million, while income from job listings and other online classified advertising ticked up 16 percent.

The numbers surprised Wall Street, where analysts had predicted the Internet bellwether to report a profit of 11 cents a share on $497.9 million in revenue excluding total acquisition costs, according to estimates from Thomson First Call.

Analyst Derek Brown with Pacific Growth Equities in San Francisco said he was surprised by the ``the sheer size of the quarter'' for Yahoo.

``This was a substantial quarter for them and for the industry overall,'' Brown said.

Perhaps more than any other company, Yahoo is riding a rebound in the online advertising industry. After years of declines, Internet ad revenue hit $2.2 billion in the fourth quarter of 2003, a record-breaking 38 percent jump over the same quarter in 2002, according to PricewaterhouseCoopers. That's the highest quarterly growth rate since the firm started recording the numbers in 1996.

In October, Yahoo helped gain a bigger share of that spending by acquiring Overture, which operates a pay-per-click advertising service.

``There is a bigger acceptance of the Internet as a marketing medium, and within that context, of Yahoo in particular,'' Brown said.

The earnings are further validation of Semel's efforts to turn around the once-sagging company. As recently as early 2002, Yahoo was posting losses as it reeled from the dot-com bust.

But Semel focused the company's vision, sought out new kinds of advertisers and further integrated its various services so that users can more easily move around the portal. Earlier this year, for example, Yahoo announced a new tool that links its Yellow Pages, mapping service, movie listings and other services.

The company is also becoming less reliant on business partners; it dumped Google as its search engine this year, opting to use its own technology. Its search box is now embedded into virtually all of its services.

``We have created an efficient operating model,'' Semel said, ``in which services are starting to support each other, making the whole greater than the sum of the parts.''

The company also boosted the number of fee-paying customers who use services such as premium e-mail to 5.8 million, about double what it was a year ago. There are now 141 million ``active'' registered users, the company said.

The first-quarter results prompted the company to revise its expectations upward for the rest of the year, predicting revenue -- excluding the total acquisition costs -- of between $2.4 billion and $2.5 billion through December. The company's previous forecast was no more than $2.25 billion.

Yahoo shares dipped 42 cents during regular trading on the Nasdaq. But the earnings news pushed shares up 10 percent in after-hours trading, to $53.14.

Source: Silicon


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