Yahoo! Makes the Grade

Web portal Yahoo posted better-than expected results Wednesday, on the strength of its paid products and stability in online ad sales.

The Sunnyvale, Calif.-based firm saw third-quarter revenue of $248.8 million, up 50 percent from last year, with $22.4 million of that total coming courtesy of HotJobs, which Yahoo acquired earlier this year. Those revenues led to net income of $28.9 million, or $0.05 per share, versus a net loss of $24.1 million, or $0.04, a year earlier.

Wall Street consensus had pegged the firm to make $0.04 per share for the quarter, according to Thomson Financial/First Call estimates.

Executives touted Yahoo’s success as being due to its continuing efforts to eke out new revenue streams through fee-based products — a course of action outlined last year by then-incoming chairman and chief executive officer Terry Semel to address concerns about slipping advertising revenue.

“Despite a challenging external environment, it is clear Yahoo is benefiting from the strategy and plan we laid down nearly a year ago and that our efforts to position the company for sustainable, profitable growth are paying off,” Semel said.

Yahoo’s Marketing Services unit, which includes advertising sales and paid search engine results, saw a 22 percent increase in revenue from last year, to about $147.4 million. The company attributed the growth to efforts by the portal’s inside sales organization, as well as an increase in revenues from paid search — which is powered through a partnership with Overture .

That’s good news for followers of the online ad industry, as Yahoo is viewed by many as a bellwether for the overall state of Internet advertising. Last quarter, the company posted its first profit in a year and a half, but saw only middling growth in advertising.

Semel said Yahoo’s has enjoyed particular success this quarter in selling ads to clients in the entertainment, automotive, and travel sectors. Yahoo recently struck deals with Fox Television, among others.

He added that the company also has benefited from efforts to better leverage high-volume media like Yahoo’s front page, and from building the company’s ad-serving infrastructure “to leverage ground-breaking new creative.”

“We expect similar [revenue] gains in fourth quarter,” Semel added.

In addition to better-than-expected sales of mainstream advertising inventory, the portal also benefited from strong growth in its Fees and Listings area, which brought in $61.6 million in revenue, representing a 36 percent increase versus last year, excluding HotJobs’s $22.4 million contribution.

The division encompasses Yahoo’s trade in classified ads — one of the few areas in Internet advertising expected by many to become a major source of growth in coming years.

“We are outperforming the industry and increasing market share in sections including marketing services, job listings and personals,” Semel said.

The division also includes Yahoo’s bevy of recently introduced paid products, such as ISP services, through a partnership with SBC . Those paid products and services are another major growth area for the portal, which is seeking to decrease its reliance on advertising.

“We have evolved our business model … to [provide] a comprehensive marketing solutions platform and premium products and services for consumers and businesses … a more sustainable and balanced revenue model,” Semel added.

Yahoo’s cut of revenue from e-commerce transactions handled on its site also grew sizably, from about $8.6 million last year, to about $18.3 million. It attributed the increase to a greater number of sales made through its sites, and a shift to a per-transaction fee for merchants operating a private-label Yahoo Store.

Based on the strong performance, the company also raised its forward guidance. Now, it expects to post full-year revenues of between $930 million and $955 million, with earnings before one-time charges ranging between $190 million and $200 million.

For 2003, the company said it anticipated revenues of between $1.075 billion and $1.175 billion, with before-charges earnings of about $250 million to $300 million.

Part of that growth could come from improvements in two of Yahoo’s best-performing units. During a conference call with analysts on Wednesday evening, Semel detailed Yahoo’s plans to further monetize its search traffic and job listings business.

With regard to search, Semel announced a renewed, non-exclusive agreement with Google to provide spider-based editorial search listings, which now will appear on the same page as results from Yahoo’s own listings.

Terms were not disclosed, but Yahoo previously paid about $7 million to Mountain View, Calif.-based Google during 2001, according to documents filed with the Securities and Exchange Commission.

“We are committed to being a leading search service throughout the world … and are making immediate and continued improvements in order to provide more relevant and comprehensive search results,” he said, adding that Yahoo retains the right to build its own search technology or to partner with others, in addition to Google.

In addition, Semel said Yahoo is close to finalizing the integration of HotJobs into its own publishing platform. As a result, HotJobs could benefit from the portal’s personalization features, he said.

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