Yahoo results could surprise, but concerns remain

Andrea Orr

PALO ALTO: Struggling Internet media company Yahoo! Inc. is expected to

report another quarter of ho-hum results on Wednesday, reflecting the stubbornly

weak Internet advertising market and limited progress in developing new sources

of revenue.

But Wall Street analysts say there could be some upside over the official

forecasts for a small operating profit, if any of the company's new advertising

formats, or its new fee-based services, show strength.

Yahoo, which has reported five straight quarters of net losses, continues to

depend on online advertising for the bulk of its revenues, although it has made

some progress at widening its revenue base by adding fees for services ranging

from personal ads to e-mail storage and games.

Analysts, who on average are expecting the company to show a first-quarter

operating profit of 2 cents per share on revenue of $173.6 million, say they

have a number of questions about how broadly all the new fee services have been

adopted.

It is also unclear whether results of the online recruiting site HotJobs,

acquired during the first quarter, will be included in Yahoo's results. Current

estimates do not include any contribution from HotJobs, which could produce a

positive surprise for Yahoo if its results are included, according to W R

Hambrecht analyst Derek Brown.

Brown stressed, however, that any such positive surprise over official

forecasts would not be big enough to remove lingering concerns about the

company's operations.

New services seem 'incremental'



"A number of new fee-based services that the company has rolled out
seem to be incremental," Brown said. "At the end of the day, each one

is still a much smaller part of the business than advertising." "My

suspicion is that the likely catch phrase this quarter will be stabilization.

There seems to be very little discussion that I've heard indicating that the

advertising market has turned up in any meaningful way."

One exception to the weak ad market, however, is the "paid

listings" category, in which companies buy certain words to ensure that

their names will appear when users search those terms.

Yahoo late last year entered a partnership with Overture Services Inc., the

leader in paid listings, to include these ads on its site, and that could be one

bright spot for the company, said Safa Rashtchy, an analyst with US Bancorp

Piper Jaffray. Rashtchy also noted that his own research is pointing to a

"nice increase" in advertising revenues over the fourth quarter.

"My guess is that results will come in at the high end of the company's

guidance," Rashtchy said. Still, a positive surprise in this market is a

much different thing than the surprisingly strong earnings that the company used

to report three years ago.

Analysts note that the current forecast for revenues is lower than what Yahoo

showed in all but one quarter in 2001 -- and that was a very bad year for the

company. "We're looking for revenue to be down over last year, or perhaps

flat, and maybe even modestly up," but that is coming off a truly

disastrous year," Brown said.