July 18, 2007 / 12:05 AM / 12 years ago

Yahoo posts lower profit, gives weak 2007 forecast

SAN FRANCISCO (Reuters) - Yahoo Inc. YHOO.O reported a dip in quarterly profit on Tuesday as corporate advertisers spent less on its online ads, and the company gave a weaker-than-expected forecast for the rest of 2007.

Yahoo's headquarters are seen in an undated publicity photo. Internet media company Yahoo Inc. on Tuesday reported a dip in quarterly profit in line with previously lowered expectations, weighed down by weak brand advertising and recent management turmoil. REUTERS/Handout

Shares in the Internet media company fell 4.2 percent in extended trade.

Jerry Yang, the company’s co-founder who took the CEO job in a June management shakeup, promised a new strategic plan as he sought to convince investors he is open to change and able to take on rapidly growing rival Google Inc. (GOOG.O).

“I intend to spend the next 100 days or so focused on mapping out a strategic plan,” Yang told Wall Street analysts on a quarterly conference call. “There are no sacred cows.”

He said Yahoo has three priorities: help advertisers gain insight into Yahoo customer interests, create a more open technology platform for Internet users and arrange more partnerships such as those struck in the past year with eBay Inc. (EBAY.O), Comcast Corp. (CMCSA.O) and newspapers.

RBC Capital Markets analyst Jordan Rohan said he remains convinced Yang and Susan Decker, the former chief financial officer who took over as president last month, are in favor of a longer-term, slower-growth strategy.

“It just reminded me of current U.S. military struggles — troop surges and all that stuff,” Rohan said following the management conference call. “It is frustrating to investors who clearly want the company to realize its asset value quickly.”

Wall Street remains impatient following the management changes and wants to see significant job cuts, a renewed focus on its Internet media business, the outsourcing of Web search to either Microsoft Corp. (MSFT.O) or Google, and a potential combination between Yahoo and another major Internet player.


Net income for the second quarter fell to $161 million, or 11 cents per diluted share, from the year-earlier quarter’s $164 million, or 11 cents per diluted share.

The earnings were in line with the company’s previously lowered forecast and Wall Street’s adjusted expectations.

Revenue excluding the cost of payments to advertising partners, or so-called traffic acquisition costs (TAC), rose 11 percent to $1.24 billion, in line with lowered Wall Street forecasts after the company warned of weaker results in June.

By contrast, Google, the leader in search and pay-per-click ads, is expected to show at least four-times-faster revenue growth in its own quarterly report on Thursday.

Internet research firm eMarketer said it expects Google to grab 27.4 percent of the estimated $21.7 billion U.S. online advertising market in 2007, while Yahoo’s share could fall to about 16.3 percent this year, down from 19.4 percent in 2005.


Yahoo has disappointed investors in five of the last six quarters and seen its share price drop roughly 30 percent since the start of 2006.

The company had warned in mid-June that slower growth in online display advertising used by corporate brand advertisers would offset somewhat better results from its recently upgraded search ad business, known as Project Panama.

Total revenue rose 8 percent to $1.70 billion. Gross marketing revenue from online advertising sales rose 7 percent to $1.49 billion, aided by an 18 percent increase in sales from Yahoo’s network of owned and operated sites to $887 million.

Fee revenue, from sales of Internet access via broadband partners or subscription services such as premium e-mail, rose 12 percent to $212 million in the latest quarter.

Yahoo forecast revenue excluding payments to ad affiliates of $4.89 billion to $5.19 billion for 2007. It had previously expected it to be $4.95 billion to $5.45 billion for the year.

That was below analysts’ forecast range of $4.99 billion to $5.40 billion for the year. Third-quarter margins will fall to a range of 32 percent to 34 percent, their lowest levels for the year, Yahoo said.

Yahoo’s display advertising is also under pressure from the popularity of lower-price ads on social network sites such as News Corp.’s NWSa.N MySpace and Facebook, Decker said.

Shares had closed up 3.1 percent at $27.53 in regular-session trading on Nasdaq. Following the report, Yahoo’s stock fell to $26.38.

Additional reporting by Michele Gershberg in New York

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