Yahoo Disappoints Street Despite Profit

Yahoo Inc. (YHOO), operator of the Internet's most popular site, said on Wednesday that quarterly net profit rose 62 percent, aided by its October purchase of Web search advertising provider Overture Services Inc.

But Yahoo shares slipped 3.8 percent to $46.55 in after-hours trade as the company's fourth-quarter profit and 2004 forecast fell short of analysts' and investors' unofficial growth expectations, which ran ahead of Wall Street's published estimates. The so-called "whisper numbers" sent the stock higher in recent sessions.

"The Street was flying free," said one financial analyst who follows the company but declined to be named. "The stock may have gotten a little ahead of itself."

"The fundamentals remain very strong. I thought the guidance was pretty healthy," said Imran Khan, an analyst at Fulcrum Global Partners, an independent research firm that has no investment banking. Khan does not own Yahoo shares.

Sunnyvale, California-based Yahoo posted fourth-quarter earnings of $75 million, or 11 cents a diluted share, compared with net profit of $46.2 million, or 8 cents last year.

Revenue was $511.3 million, up from $285.8 million a year ago. Those figures exclude traffic acquisition costs, or TAC, which cover Yahoo's revenue sharing with partners such as Microsoft Corp.'s (MSFT) MSN Internet unit. Including TAC, revenue was $663.9 million.

The company's biggest revenue driver is marketing services, or online advertising, which surged 178 percent to $545.5 million. Fee revenue from such premium services as personal ads and SBC/Yahoo DSL, were up 37 percent to $85.2 million.

Yahoo's results matched analysts' average estimate for a profit of 11 cents a share and beat their call for revenue, excluding TAC, of $495.49 million, according to Reuters Research, a unit of Reuters Group Plc.

"I think we've built a strong and diverse foundation which assists us in achieving our long-term objective to generate consistent and sustainable growth," Yahoo Chairman and Chief Executive Terry Semel said.

Semel, the former co-chair of Warner Bros. (TWX), has helped steer Yahoo into new and profitable areas after its important banner advertising revenues were deflated by the dot-com bust. He has helped bring in more fees from premium services like online dating and job search, while spearheading the acquisitions of Web search provider Inktomi and Overture, a key player in the fast-growing and very lucrative Web advertising services market.

Yahoo in recent months has been turning up the heat on its rival Google Inc., the No. 1 Web search company. Executives said in a conference call that Yahoo will be even more aggressive in search in 2004, using its own search technology during the first quarter on most its site, replacing Google.

Semel said Web advertising will continue to drive growth in 2004 and that Yahoo's marketing services revenue is expected to accelerate 25 percent to 30 percent — faster than the overall advertising market.

Executives also see Yahoo's unique paying subscriber number rising to more than 7 million at the end of 2004, from almost 5 million in 2003.

For the current first quarter, Yahoo forecast revenue, excluding traffic acquisition costs, of $475 million to $505 million. For 2004, Yahoo sees revenue, excluding TAC, of $2.12 billion and $2.25 billion.

Analysts, on average, estimate that Yahoo will post a first-quarter profit of 11 cents a share on revenue, excluding TAC, of $491.7 million. For the year, they expect the company to have a profit of 54 cents a share on $2.18 billion in revenue before TAC.