Yahoo Q3 profit beats forecast

By Andrea Orr

PALO ALTO, California: Yahoo Inc reported its strongest quarterly growth since the dot-com boom ended, showing a better-than-expected profit and a 50 percent increase in revenues. The Internet media company also raised financial estimates for the current year, saying its two-year-old turnaround strategy had started to pay off as more small businesses advertised on its site and consumers purchased its services.

Yahoo said it earned $28.9 million or 5 cents per share in the third quarter, compared with a loss of $24.1 million or 4 cents per share in the year-earlier quarter. "They had strong quarterly results and an even stronger outlook," said Jordan Rohan, an analyst at SoundView Technology. "It's a breath of fresh air ... Investors should welcome this earnings report."

The profit was higher than the average analyst estimates of a profit of 4 cents per share, according to those surveyed by Thomson First Call. Revenues grew to $248.8 million from $166.1 million a year earlier.

While much of that 50 percent increase in revenue reflected new services, including the online recruiting site HotJobs that Yahoo acquired earlier this year, the company said that even its advertising sector performed well.

"This is a strong validation of the course we've set for this company," Yahoo Chief Executive Terry Semel told analysts during a conference call after the third quarter results were reported. Yahoo shares, which had closed the regular trading session up 47 cents to $9.98 a share, rose to $10.55 in after-hours trading on Instinet after the results were released.

Small advertisers drive growth

Yahoo said that revenues at its marketing services division, which covers online ad sales, were up 22 percent. The company said the main reason for the strong growth was an increase in revenues from small and medium-sized businesses.

Earlier this year, Yahoo entered a partnership with the online advertising company Overture Services Inc. to include paid ads, also known as paid listings, in its search results. That new feature has attracted many smaller advertisers who cannot afford large promotions.

Although paid search has become an area of increased focus at Yahoo, Semel stressed that the company also remained committed to its main search services. He said the company had recently extended its partnership with search engine Google, but might consider additional search partners as well.

The company's other big area of growth was paid services such as access, extra e-mail storage and Yahoo Personals. The company has steadily been adding fee-based services as a way to offset the prolonged advertising slump and said that such paid services accounted for 41 percent of its total revenue in the past quarter.

Yahoo also raised guidance, saying it expects 2002 revenues of between $930 million and $955 million, and full year EBITDA, earnings, before interest, taxes, depreciation and amortization, of between $190 million and $200 million. In 2003 Yahoo said it expects revenues of between $1.08 billion and $1.18 billion and EBITDA earnings of between $250 million and $300 million.

"Once again they pull a rabbit out of a hat and they raise guidance again," said Kaufman Bros. analyst Paul Kim. "We always expect them to beat numbers but this year they always beat it much more. The guidance for 2003 is a big number. We have to have a better idea how they get to the 2003 number."

Still, some analysts offered a word of caution, noting that virtually all of the growth in advertising revenues came out of the new partnership with Overture, and that Yahoo's traditional business selling ad space on its site to large companies, remained. "Big companies were still not spending," said Investec analyst Jim Priessler. "They dug down deeper into the pie, but I don't see an (ad) turnaround. The net is that business is clearly stabilizing but what do they do from here?"

(With additional reporting by Reshma Kapadia in New York)

© Reuters