Yahoo! Revenues Rise, Profits Remain Flat

  |  October 19, 2005   |  Comments

The portal said the ad business is booming and explained its acquisition of Whereonearth.

Yahoo brought in $1.3 billion in revenues in the third quarter of 2005, up 47 percent from the same period last year. But net income at the portal was flat year-over-year, coming in at $254 million, or $0.17 per share.

"We were able to deliver these results even while investing in and pursuing emerging opportunities," Yahoo Chairman and CEO Terry Semel told investors on a conference call.

Marketing services revenues, which include brand advertising and sponsored search, came in at $1.2 billion, up 46 percent from $796 million in the same quarter last year. The company doesn't break out brand versus search dollars but said both areas were growing.

Semel said the company had a 90-percent renewal rate among the top 200 brand advertisers and noted that the company had seen increased interest in targeting capabilities, network-wide packages, and rich media ads -- particularly video.

"Targeting, in particular, is gaining in popularity among our clients," Semel said. "We also saw the volume of video streaming ads almost double year-over-year, with much of this driven by consumer packaged goods companies."

In the search arena, the amount of money Yahoo pays to partner publishers climbed to $398 million, as compared to $251 million in the third quarter of 2004.

Semel noted the company's plans to build a network of smaller publishers to distribute its advertising, and said the ongoing Yahoo Publisher Network beta test would be expanded in 2006's first quarter.

Additionally, Yahoo announced its purchase of UK local search advertising company Whereonearth, in a bid to improve the relevance of its local search ads. The portal didn't disclose the purchase price.

"This particular acquisition," said Dan Rosenzweig, Yahoo's COO, "will help with the monetization of local, which is to more effectively target advertising locally."

According to Semel, Yahoo clients are increasingly likely to cross-over between brand and search marketing. It's a trend Yahoo hopes to accelerate by bringing the sales teams responsible for brand and search advertising under one umbrella.

"Already 50 of the top 200 U.S. brand advertisers are also in the top 200 search advertisers," he said. "The more they utilize both forms of advertising on the Yahoo network, the better they do with each."

But Semel later added that Yahoo is seeing growth from more than just the top-spending advertisers. "Smaller and medium-sized advertisers are doing a much better job as well," he said.

Yahoo CFO Sue Decker noted that the company expects revenues from its sponsored search distribution to MSN to continue to decline until the contract expires in June 2006.

International efforts are growing in importance to Yahoo as the U.S. begins to reach its full potential. In the quarter, the company brought in $229 million of revenues, excluding traffic acquisition costs, from international markets, as compared to $152 million in the year-ago quarter. U.S. revenues, by contrast, were $704 million for the quarter.

Total revenues from fees was $170 million in the quarter, up 55 percent from the $110 million fees brought in during the 2004 period.

Yahoo gave guidance indicating revenues for the fourth quarter would total between $1 billion and $1.1 billion. That will result in operating income before depreciation and amortization of between $452 million and $482 million.

For the full year, Yahoo expects revenues to come in between $3.6 billion and $3.7 billion, resulting in operating income of between $1.5 billion and $1.6 billion.

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ABOUT THE AUTHOR

Pamela Parker

Pamela Parker is a former managing editor of ClickZ News, Features, and Experts. She's been covering interactive advertising and marketing since the boom days of 1999, chronicling the dot-com crash and the subsequent rise of the medium. Before working at ClickZ, Parker was associate editor at @NY, a pioneering Web site and e-mail newsletter covering New York new media start-ups. Parker received a master's degree in journalism, with a concentration in new media, from Columbia University's Graduate School of Journalism.

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