Yahoo Profit Falls 38 Percent
Yahoo Inc. shares fell Wednesday after reporting a drop in its third-quarter
profit and saying it will end a disappointing year with a financial letdown
in the fourth quarter.
Yahoo shares fell $1.16, or 4.8 percent, to close at $22.99 Wednesday on the
Nasdaq Stock Market.
After the markets closed on Tuesday, Yahoo announced a 38 percent drop in its
third quarter profit and dimmed the revenue outlook for the crucial holiday
shopping season. Chairman Terry Semel acknowledged the company's recent difficulties
in a conference call and vowed to fix them with a "back to basics"
Semel punctuated his pledge by announcing Yahoo had finally started to roll
out much-anticipated improvements to its system for selling and distributing
ads tied to search terms and other topics displayed on Web pages.
Yahoo also acquired a provider of online marketing tools and bought a 20 percent
stake in Right Media Exchange, an advertising bazaar.
The improved ad platform, which Yahoo abruptly delayed three months ago, is
considered the key to the company's comeback efforts. The changes aren't expected
to begin boosting Yahoo's profits until next year.
"I am not satisfied with our current financial performance, and we intend
to improve it," Semel assured analysts during a conference call Tuesday.
"We are not exploiting our considerable strengths as well as we should
Yahoo missed its financial targets in the third quarter, a shortfall that investors
already knew was coming. Semel braced Wall Street last month by warning Yahoo's
revenue had slipped late in the quarter because of a decline in automobile and
financial services advertising.
The Sunnyvale-based company earned $158.5 million, or 11 cents per share, for
the three months ended in September. That compared with net income of $253.8
million, or 17 cents per share, in the same period last year.
The quarters weren't totally comparable because of new accounting rules requiring
Yahoo to deduct the cost of employee stock options from this year's profit.
Still, the results matched analyst expectations, according to Thomson Financial.
Revenue for this year's quarter totaled $1.58 billion, a 19 percent increase
from $1.33 billion last year.
After subtracting commissions Yahoo paid its advertising partners, third-quarter
revenue totaled $1.12 billion, slightly below analysts' already lowered expectations.
Yahoo didn't give investors any reason to feel better about the fourth quarter,
traditionally the company's most lucrative because the holiday shopping season
encourages more advertising.
Excluding ad commissions, Yahoo forecast its fourth-quarter revenue will range
from $1.15 billion to $1.27 billion. The average analyst estimate had been $1.30
billion, according to Thomson Financial.
Wall Street has been frustrated with Yahoo for most of this year, largely because
the company hasn't been targeting online ads as effectively as Google Inc.,
the Internet search leader that runs the Web's largest marketing network.
Yahoo's improved ad platform, code-named "Panama," is designed to
close the gap with Google.
Although Yahoo continues to run the most trafficked Web site on the Internet,
the company faces a stiffening challenge from recent upstarts like News Corp.'s
MySpace.com, Facebook.com and YouTube.com, which Google is buying for $1.65
Despite those threats, Yahoo ended September with 215 million active registered
users, a 16 percent increase from the previous year. Yahoo said visitors also
were poring through more content on its site, viewing nearly 4 billion Web pages
in the third quarter, a 24 percent increase from last year.
But those numbers haven't translated into similar earnings growth, a problem
that has battered Yahoo's stock.
"There are definitely legitimate concerns" about Yahoo, said American
Technology Research analyst Rob Sanderson. "It has become a 'show-me' stock
and (the company) hasn't been showing much."