Advertisers Drive Yahoo! to Record Year

Strong growth in marketing services propelled Yahoo to a record fourth quarter and full-year 2004. Yahoo CEO Terry Semel credits the growth to increased user engagement and growing acceptance of online advertising.

The company posted net income of $373 million, or $0.25 per share, for the last three months of 2004. For the full year, it recorded net income of $840 million, or $0.58 per share. In the fourth quarter, the company brought in revenues of $1.1 billion, a 62 percent increase over the same period in 2003. Revenues for the full year came in at $3.58 billion, a 120 percent increase over 2003.

Overall revenues for marketing services, the segment that includes both brand advertising and paid search, surged considerably, both for the full year and for the fourth quarter. Marketing services brought in $910.6 million in the fourth quarter, and $3 billion for the full year, as compared to $545.5 million and $1.2 billion for the corresponding 2003 periods. Yahoo doesn’t break out display advertising from search marketing, but said both areas are growing considerably.

“In branded advertising we increased revenues from existing customers as well as attracted new customers,” said Semel. “Q4 spending by AdAge top 100 marketers was 55 percent higher in the fourth quarter than in Q4 of last year. In the fourth quarter they spent the same amount that they spent in entire year of 2002.”

Semel said advertisers were shifting to a more audience-based approach, trying to find their respective target audiences on a variety of places on Yahoo, rather than focusing on certain content areas.

In the sponsored search arena, Yahoo saw more diversification in the categories represented. While travel once dominated paid search at Yahoo, with retail and financial coming in behind, 2004 saw retail begin to lead. Travel and financial came in second and third, respectively. The company also experienced more participation from automotive, technology and telecom players.

Both branded and search advertising benefited from the growth in Yahoo’s user numbers. The company ended the fourth quarter with 345 million users, up from 263 million in the same quarter of 2003. Of those users, 154 million are active and registered. That’s up 31 percent year-over-year. Semel also said users are spending more time on Yahoo He cited comScore numbers, saying users spent an average of 8 percent more time per month on Yahoo in 2004, as compared to 2003.

Semel outlined four key objectives for the company in 2005: to engage users even more aggressively through new products and services; to make Yahoo more available on wireless and other platforms; to expand internationally; and to make its audience more attractive to advertisers. To attract brand advertisers, the company expects to invest in tools, formats, measurement capabilities and data. For search marketers, Yahoo will continue to make significant investments in tools and matching technologies, executives said.

Yahoo’s fees and listings businesses also grew in the fourth quarter and full year of 2004. Full-year revenues came in at $425.5 million for fees and $147.2 million for listings. In the fourth quarter, fees revenues were $124 million and listings brought in $38. Next quarter, Yahoo will begin to lump listings revenues in with other marketing services revenues.

For the first quarter of 2005, Yahoo expects to bring in $765 to $805 million in revenues, excluding traffic acquisition costs. That would result in operating income of $290 to $310 million, the company said. The full year 2005 is expected to bring Yahoo $3.4 to $3.6 billion in revenues, excluding what it pays for traffic. Operating income would come in at between $1.4 and $1.5 billion, according to the company.

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