Online ad sector gets ray of hope from Yahoo results

By Reshma Kapadia

NEW YORK: Internet media giant Yahoo Inc.'s ability to beat third quarter sales and earnings estimates offered a sliver of hope for online advertisers, but analysts remained cautious on the sector. Investors looking for the gloomy side of the picture could find this as the industry leader's growth slowing, leaving analysts mixed on what the verdict would be for the overall industry.

Softness in online advertising spending has resulted in several warnings from members in the industry and words of caution from others. Concerns over Yahoo facing pressure has depressed its stock price by about 65 per cent since the beginning of the year. Its shares closed Tuesday at $82-11/16 before the report.

Santa Clara-based Yahoo said it earned $81.1 million or 13 cents a share on a pro forma basis in the third quarter, beating analysts' consensus estimates by a penny. In the year-ago period it earned $38.5 million, or 6 cents a share. Revenues grew to a higher-than-expected $295.6 million from $155.9 million a year-ago.

The numbers were not spectacular but companies said they were solid. However, some analysts saw pockets of concern, noting that the company served 3,450 advertisers during the third quarter compared to 3,675 in the second quarter, others were more optimistic.

Yahoo also said just over 40 per cent of its revenues was derived from pure play Internet companies, down from 47 per cent but still worrying to some industry watchers as dot-com companies cut back on ad spending to focus on profitability.

"I don't think that should be construed as bearish when a company grows revenues by 90 per cent and sequentially in a traditionally slow quarter," said Dana Serman, analyst at Lazard Freres. "The medium continues to be viable for Yahoo's clients. You wouldn't see their results and strong deferred revenues if it weren't working for their clients.

Despite the glimmer of hope, analysts were hesitant to call for a rebound in the online advertising sector, adding that more evidence was needed from other companies.

"I think Yahoo is good news. But on the other hand there are enough people, because of where the stocks are and the way the pendulum has swung to the other extreme that it won't be an immediate sigh where everyone goes back to middle," said Rudolph Hokanson, CIBC publishing and new media analyst. "It will still take time and a lot of (investors) still want to see evidence that what they are investing in is real."

(C) Reuters Limited 2000.