Yahoo! Meets Street Expectations, Cuts 2001 Forecasts

Interactive giant Yahoo met Wall Street’s third quarter expectations in a crucial announcement for Internet sector and online advertising watchers, but said it wouldn’t meet expectations for the first quarter of 2001.

The company Wednesday evening posted per-share quarterly earnings of $80.2 million, or $0.13 per share, in line with First Call/Thompson Financial analyst consensus. A year ago, the company reported quarterly earnings of $0.09 per share.

Revenues for the quarter grew to $111 million, up 56 percent from the year-ago period, but about $5 million below analyst expectations.

Yearly revenues rose to $311 million, up from $203.1 million in the year-ago period.

While last quarter’s numbers were a relief to proponents of ad-supported online content plays, Yahoo’s chief financial officer Susan Decker had some gloomy news for next year’s outlook: the company said it anticipates one of the hardest quarters ahead for the Internet industry, impacting the rest of 2001.

Decker said that first quarter will see “much of the remaining transition” from dot-com to traditional advertisers, adding that this last bit of shakeout will coincide with traditional companies’ seasonal spending reductions, making “seasonality more visible than in the past.”

As a result, the Santa Clara, Calif.-based company said Q1 earnings likely will slip to $0.04 to $0.07 per share, and $0.33 to $0.43 for the whole of 2001.

Both predictions are well below current estimates of $0.13 for first quarter and $0.57 for the year.

Revenue for 2001 also will be lower than Wall Street consensus, about $100 million to $200 million short of earlier forecasts of $1.4 billion.

“2001 will be a transition year. It is a year in which we will respond to the global economic slowdown, and a year in which we prove the value of our network … and introduce new revenue streams,” Decker said.

Yahoo did not give guidance on 2002, but said that it expects to enter that year with many of its key initiatives in place — such as new revenue streams from subscriptions and its intranet work — and expecting its annual growth rate to improve.

Yahoo did have some good news for investors, though not necessarily for the advertising industry.

While most of its revenue shortcomings were due to softness in the online ad market — advertising revenue makes up almost 90 percent of the company’s income — Yahoo said it plans to continue diversifying its revenue streams.

Decker said Yahoo expects income from its business services — that is, its subscription-based services and intranet work — to double in 2001 to account for 15 to 20 percent of its annual revenue.

The company also said it has $1,689 million in marketable securities, not including investments in Yahoo Japan.

Yahoo also said that continues to reduce its reliance pure-play dot-com clients, with 33 percent of its fourth quarter revenue coming from traditional or click-and-mortar firms, down from 53 percent in June. By the end of 2001, Yahoo said it expects traditional and mixed revenue to make up 75 to 80 percent of its annual take.

“We are in an exceptionally strong position to continue growing the business,” Decker said. “The challenging market conditions will allow Yahoo to emerge as an even more clearly defined winner for the long term.”

While Yahoo said it would be decreasing its reliance on online ad revenue, Koogle said that he had faith that ad spending will begin to accelerate in the second half of 2001.

Yahoo also said its CPM rate actually increased from the beginning of the year to the end, and attributed this to its advertiser quality and depth of service.

Tim Koogle said that Yahoo believes traditional advertisers intend to increase their spend with Yahoo in the future. “We get no indication that they don’t believe that the Internet is a valuable medium for them,” Koogle added.

“The consolidation … we believe ultimately rewards companies like Yahoo”

At press time, Yahoo was down $5.75 in after-hours trading on the REDIBook ECN, to $24.75.

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