Marketing Drives Strong Second Quarter for Yahoo!

Yahoo posted a profit of $112.5 million in the second quarter of 2004, on strength in both its search and its brand advertising businesses.

The company saw overall revenues come in at $832 million, more than double the $321.4 million it brought in during the same, year-ago period. Net income per share was $0.08, as compared to $0.04 in the second quarter of 2003. The numbers were in line with analysts’ expectations, as surveyed by Thomson/First Call.

Still, some investors were disappointed, possibly because Yahoo is well-known for beating analysts’ expectations. Their reaction caused the stock to dip $3.86 to $28.74 per share at press time in after hours trading. Yahoo has seen its stock soar since it last reported earnings, reaching a 52-week high of $36.51 on July 30. But more recently analysts have sounded notes of caution, resulting in a price drop since the start of July.

Yahoo’s increase in marketing services dough was due both to organic growth and to the acquisition of Overture Services, which closed in October of 2003. Revenues from these businesses came in at $691 million, up 215 percent from the $219 million they brought in during the same period in 2003.

Yahoo Chief Executive Terry Semel dismissed concerns about competition with Microsoft’s MSN — currently a partner but likely to become a rival as it is expected to launch its own search engine by the end of the year.

“If anything, we wish them well,” he said, “and the more good competitors out there the better.”

Despite the popularity of the search sector, Yahoo executives maintained that brand advertising is also on a growth trajectory. Semel said he felt Internet advertising was approaching a “tipping point,” driven by larger advertisers getting to know the medium, along with strong renewals among existing clients.

Semel said more than 90 percent of Yahoo’s advertisers renewed from the first quarter to the second. He mentioned the portal’s strength with consumer packaged goods companies, consumer telecommunications and entertainment players.

“When consumers think about the Internet, more than ever, they are thinking about Yahoo” he said. “When marketers think of the Internet, more than ever, they, too, are thinking about Yahoo”

The company saw the volume of search queries dip slightly during the quarter, though it didn’t give specific numbers. Executives said that pattern was typical for the second quarter of the year. Compensating somewhat for that, according to Yahoo, were revenues for brand advertising. The company doesn’t break out these two parts of its marketing services business.

Yahoo also saw growth in its fees and listings businesses, though they didn’t grow quite as quickly as marketing services.

Fees revenue totaled $104 million, a 49 percent increase over the $70 million it brought in during the year-ago period. That growth was driven by subscriptions to Yahoo’s premium services, such as email and Internet access.

The company brought in $38 million in listings revenue in the second quarter, compared to $32 million in the same period during 2003.

Yahoo said it expected to bring in $610 to $650 million in revenues in the third quarter, excluding the revenue it shares with partners who sent it traffic. For the full year, it pegged revenues at between $2.46 and $2.54 billion, up just slightly from its previous forecast of between $2.41 and $2.52 billion.

“We will have a lot of work to do,” said Chief Financial Officer Sue Decker. “We have a lot of pokers in the fire and believe future results could be even more compelling.”

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