Yahoo! Boosts Profit, Earnings in 4Q

Yahoo showed strong revenue and earnings growth in the fourth quarter of 2005, driven by both search and display advertising. Revenues came in at $1.5 billion, a 39-percent increase over the year-ago period, while net income was $683 million, or $0.46 per share.

Once the company adjusted its numbers to account for certain one-time events, net income would have come in at $247 million, or $0.16 per share. That was up from $0.13 per share during the same period last year, but less than the $0.17 analysts had expected, according to a survey by Thomson First Call. Yahoo stock dived on the news.

The company also released full-year revenues and earnings numbers Tuesday. In all of 2005, Yahoo brought in $5.3 billion in revenues, up 47 percent from the year before. Net income was $1.9 billion, or $1.28 per share.

Not surprisingly, marketing services — from search and display advertising — accounted for the lion’s share of Yahoo’s revenues in the fourth quarter. The company brought in $1.3 billion from marketing services in the quarter, up 39 percent from $942 million in the 2004 period.

“Thirty-nine percent year-over-year growth was a result of strong contributions from all forms of advertising,” said Yahoo Chairman and CEO Terry Semel. “We are clearly the number one player in the brand advertising segment. Yahoo continues to outperform and gain market share. That is why our average revenue per U.S. brand advertiser in the fourth quarter has more than doubled in less than two years.”

But Yahoo plans to improve brand advertiser tools, investing in video, increasing targeting capabilities, and enabling advertisers to buy larger campaigns more efficiently.

“We believe one of the most explosive content areas over the next few years will be video,” Semel said, adding that he wants Yahoo to be the premier place for people to “find, create, distribute and watch video”.

Semel said search, too, was “performing very well,” especially among automotive, financial services and retail clients. Yahoo doesn’t break out search and display advertising numbers.

One dark cloud on the horizon for Yahoo’s search business is the loss of distribution partner MSN. Overall, the company expects to lose $120 million in revenue due to the loss of affiliate distribution. CFO Sue Decker said she expects search dollars from owned and operated properties to make up a larger percentage of total revenues.

In an effort to boost search, the company will overhaul its advertiser interface, Semel said, so users can “buy more keywords, test more creative and add more listings faster.” The company is also working to improve relevance and click-through for search ads. Yahoo this week is rolling out shorter creative lengths in a bid to boost click-through.

In announcing earnings, Yahoo said it expected revenues of between $1 billion and $1.1 billion for the first quarter, and revenues of between $4.6 billion and $4.9 billion for the full year 2006.

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