Yahoo Shows Signs of Display Ad Growth in Q3, Builds Publisher Network

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The mood among Yahoo execs during this afternoon's Q3 earnings call was one of cautious encouragement as the company reiterated long-term missions and announced new publisher relationships. It reported year-over-year display ad growth and higher CPM rates, along with overall revenues for the quarter ending September 30, 2007 of approximately $1.77 billion, up 12 percent over the same period last year.

The firm hopes new ad deals with Cars.com, Forbes.com, Ziff-Davis Media, and WebMD will propel it towards its goal of achieving broad ad network scale and complement efforts to grow traffic on its own properties through improvements in its search algorithm, focus on mobile, and an opening of its platform to developer applications.

Noting anticipated continued growth in the online ad market, Yahoo founder and CEO Jerry Yang said, "We are one of the only few companies that have the scale, technology, insights, and expertise to take advantage of this opportunity." Still, he admitted, in order for the company to reach its "multi-year objectives" to become the common Web "starting point," a "must buy" for advertisers, and enable open platforms, "What we must do better is integrate."

Yang and his colleagues alluded to extensive discussions over the past few months regarding the company's overall strategy, though he failed to specifically reference the "100 days" planning period he introduced during Yahoo's earnings call last quarter. Over 90 days have passed since he announced his plans to consider the firm's future intently over the subsequent 100 days.

He did, however, indicate part of the streamlining strategy will be to divest or cease funding a number of "one-off services" in the coming months.

The company reported marketing services revenues from its owned and operated sites came in at $922 million for Q3 of this year, up 24 percent over Q3 '06. Marketing services revenues from affiliate sites dipped 1 percent from the same period of 2006 to $622 million this past quarter, in part because the firm continues to remove low-quality affiliates from its network. Overall, marketing services revenues came in at $1.5 billion in Q3 of this year, up 13 percent over Q3 '06.

Minus traffic acquisition costs, Yahoo reported revenues totaling $1.28 billion in Q3 '07, an increase of 14 percent over Q3 '06.

According to Yahoo President Susan Decker, Yahoo's global display ads grew 20 percent year-over-year, better than expected. In addition, U.S.-owned and operated search revenues rose over 30 percent compared to the same quarter last year. A report from SearchIgnite and RBC Capital Markets released yesterday shows third quarter spending on Yahoo search ads rose 7.8 percent in Q3 2007 compared to Q2.

Decker also told investors the company's Panama ad management platform has been rolled out to "substantially all" Yahoo's customers globally.

Following its acquisition of ad network Blue Lithium and ad exchange Right Media, and ad serving deals with eBay, Comcast, and several online newspaper publishers, it has become clear Yahoo recognizes it must build scale for advertisers by looking beyond its own walls.

Four new publisher partnerships promise to extend Yahoo's ad reach. The company will allow Cars.com, Forbes.com, and Ziff-Davis Media to offer their advertisers display ad inventory on Yahoo's network. Forbes.com display inventory will also be added to Yahoo's finance inventory package. The company also signed an agreement to power search ads across WebMD's site network, and serve display ads within the network of health sites.

"We do expect the scale benefits to be very important to Yahoo," said Decker of the new publisher relationships. The company also has begun migrating its non-premium ad inventory into the Right Media exchange and expects to have the majority of it migrated by years end, she added.

Elaborating on the firm's mission to open its platform, following in the footsteps of Facebook, Yang explained Yahoo will open its Web pages to other applications, and create its own applications for integration elsewhere.

"We're inventing and driving to transform Yahoo...into a leading platform of choice for software developers," he said.