Net Income Down in Q4 and 2007, Yahoo Promises Profound Changes in ’08

Strategic investments and streamlining were the common themes of Yahoo’s Q4 2007 earnings call this afternoon. In addition to confirming layoff rumors, the firm announced the multi-year renewal of its ad revenue sharing deal with AT&T. Net income for the quarter and full year 2007 was down from 2006.

“We’re not tinkering around the edges,” said CEO Jerry Yang, stressing long term growth goals. The company is “making profound changes,” he continued. Those changes include layoffs of about 1,000 staffers by mid-February. The company currently has some 14,300 employees.

Throughout the call with investors, the company reiterated the three primary objectives it set forth in October: to become the common starting point for the most Web users, a must-buy for marketers, and to enable open platforms.

In Q4 2007, display ad revenues rose around 20 percent, while search ad revenues grew 30 percent, the company said. Ad impressions and CPM rates also increased year-over-year, according to Yahoo President Sue Decker. Non-guaranteed display ad prices “close to tripled since early 2006,” she added.

Overall, though, net income for Q4 and full year 2007 dropped. Net income for Q4 2007 dropped to $206 million from $269 million in Q4 2006, while the net for 2007 was $660 million, down from $751 million in ’06.

Fourth quarter revenues rose 8 percent over the same period last year to $1.8 billion, with about $4 million going towards traffic acquisition costs. Full year 2007 revenues were pegged at nearly $7 billion, up 8 percent over ’06. Total marketing services revenues also rose 8 percent to about $6 billion for 2007.

Revenue from the firm’s owned and operated sites saw an especially sharp increase during the quarter ended December 31, 2007. Those sites garnered over $1 billion, a 21 percent leap from the $853 million earned during Q4 ’06. Marketing services revenues from affiliate sites were down 13 percent from Q4 ’06 to $555 million. Total marketing services revenues came in at about $1.6 billion in the fourth quarter of last year, up 7 percent over Q4 2006.

As part of its mission to favor higher quality network partners, the company has emphasized the reduction of poor quality affiliates, contributing to the reduction in revenues from affiliate sites. “We expect a moderate decline in this business through 2008,” said Yahoo CFO Blake Jorgensen.

Also stressing ad quality over quantity, Decker said the firm is focusing on “page optimization” for fewer, yet better targeted, ads.

In a veiled jab at Google and Microsoft, both of which made huge ad management company acquisitions in 2007, Decker touted Yahoo’s efforts to build new, innovative systems in the hopes of leapfrogging “legacy” platforms acquired by competitors. “We’re increasingly moving from a catch-up mode to one of true differentiation,” she said.

Yang expressed what he called “a sense of urgency” regarding the need to transform in 2008. Part of that plan, clearly, is letting go 1,000 workers to remove redundancies and streamline the company. Execs did not state from which departments staffers would be terminated.

Concerns regarding the health of the firm and employee loyalty surfaced throughout 2007 as a steady stream of top execs exited. Most recently, Head of Yahoo Entertainment Vince Broady called it quits, and with him came the end of Yahoo’s much-hyped “Brand Universes” project, a Broady baby. In addition to helping to woo big brand advertisers to the site, the intent of the Brand Universes project was to rein in disparate Yahoo parts by unifying tools and content areas.

Ironically, the project’s demise was listed by Decker along with other projects that have or will be deemphasized in order to better streamline operations.

In addition to announcing the appointment of former VeriSign CTO Aristotle Balogh as CTO, Yahoo does appear to be hiring tech staff, account managers, mobile media account execs, as well as a Director of Agency Relations and a SmartAds Manager. According to the company’s job listings on its corporate Web site, Yahoo is also on the lookout for a Senior Partner Account Manager for its newspaper consortium, along with six HotJobs sales execs, indicating the firm will continue its focus on building out its newspaper site partnerships, a key component in broadening its growing off-site ad network.

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