Yahoo profit soars to $101 million

Thursday, April 8, 2004 | 9:24 a.m.

BLOOMBERG NEWS

SUNNYVALE, Calif. -- Yahoo Inc., owner of the world's most-used group of Internet sites, Wednesday said its first-quarter profit more than doubled to $101.2 million, its highest ever, as it sold more advertising linked to the results of Web searches.

The company also said it will split its stock, which has doubled in the last 12 months. Net income rose to 14 cents a share from $46.7 million, or 8 cents, a year ago, Sunnyvale, Calif.-based Yahoo said in a statement. Revenue more than doubled to a record $757.8 million from $292.9 million, partly reflecting last year's purchase of two search-engine companies.

Businesses are buying ads linked to searches because it lets them target consumers who have shown an interest in their products. Chief Executive Terry Semel, 61, introduced a new search engine on Yahoo in February to try to lure Web surfers and advertisers from Google Inc., the most-used search site.

"He's done a great job leveraging search technology to bring in advertising dollars," Imran Khan, an analyst with Fulcrum Global Partners in New York said in an interview. "The company is feeling very strong about the trends in the search business and the Web-advertising business."

Khan rates Yahoo shares "buy" and doesn't own them.

Yahoo shares rose $4.79, or 9.9 percent, to $53.14 in extended trading Wednesday at 6:29 p.m. New York time, after the company announced its earnings. Earlier they had fallen 42 cents to $48.35 in Nasdaq Stock Market composite trading.

Yahoo also is selling more display ads outside of search results. Companies that recently started advertising on Yahoo's Web sites include Coca-Cola Co. and Home Depot Inc., Goldman, Sachs & Co. analyst Anthony Noto wrote in a note to clients.

"They lead the industry in how they approach advertisers," said Paul Cook, a fund manager at Munder Capital Management in Birmingham, Michigan. Munder held 2.46 million Yahoo shares at year-end.

Yahoo said its board approved a 2-for-1 stock split payable May 11 to investors who hold shares on April 26. Chief Financial Officer Susan Decker said on a conference call with analysts that the split will make the stock affordable to more prospective shareholders.

The company said it expects at least $575 million in operating income for all of this year. In January, Yahoo forecast operating income of no more than $480 million. The profit measure excludes taxes and earnings from other companies where Yahoo holds equity interests.

Yahoo said revenue, excluding sales it passes to other search sites with contracts to show ads it sells, may rise to more than $2.41 billion this year. The company previously forecast no more than $2.25 billion.

The forecasts include Yahoo's recent purchase of European online shopping service Kelkoo SA.

Yahoo said it would have earned 13 cents a share, excluding a gain related to another company's loyalty-points program that ended during the quarter.

The profit topped the average estimate of 11 cents a share from 24 analysts surveyed by Thomson Financial.

Revenue would have been $550.2 million, excluding sales that Yahoo passes to other search sites with contracts to show advertising it sells. That was more than the average estimate of $500.6 million from 18 analysts.

Yahoo's advertising revenue more than tripled to $635.5 million. That was partly because the company purchased search- engine providers Overture Services Inc. and Inktomi Corp. last year.

Semel said Yahoo's advertising revenue might rise as much as 35 percent this year. In January, the company forecast revenue from marketing services would rise no more than 30 percent. The 200 largest advertising are buying more ads on Yahoo, Semel said.

Semel also has boosted sales with new subscription services for consumers. Those include high-speed Internet access that the company provides in partnership with regional telephone company SBC Communications Inc.

Subscription revenue rose 39 percent to $88.5 million in the fourth quarter.

Google, based in Mountain View, Calif., has been offering new features to take users and advertisers from Yahoo and other Web sites. Last month, Google created a link from its main page to its "Froogle" online shopping service to draw more users. Google also has begun testing an e-mail service that could compete with Yahoo's.

Google "may try to encroach on other areas of Yahoo," Ryan Jacob, a fund manager at Jacob Asset Management in New York said today before Yahoo's earnings were released. "For Yahoo, the competitive outlook is still very strong, but it's not without its risks." Jacob said he recently sold most of his Yahoo shares.