Internet Changes Everything

Yahoo tumbles on profit news

TheStar.com - Yahoo tumbles on profit news

Jan. 18, 2006. 10:50 AM
MICHAEL LIEDTKE
ASSOCIATED PRESS

SAN FRANCISCO — Yahoo Inc.'s shares dropped more than 11 per cent early Wednesday as investors expressed their disappointment with the Internet powerhouse's inability to reap bigger gains as advertisers shift more of their spending to the web.

Yahoo's shares plunged $4.66, or 11.6 per cent, to $35.45 (U.S.) in early trading Wednesday on the Nasdaq Stock Market.

he selloff came after Sunnyvale, Calif.-based company reported late Tuesday that its fourth-quarter profit nearly doubled but fell shy of analyst expectations.

It marked the second consecutive quarter in which Yahoo reported earnings growth that investors interpreted as a sign that the company isn't capitalizing on the online advertising boom as well as its rival, online search engine leader Google Inc.

"Yahoo has a good story going; it's just not as good as Google's," said Internet industry analyst Safa Rashtchy of Piper Jaffray. "We would expect to see faster growth in a growth market that seems to be on fire like this one."

Yahoo earned $683.2 million, or 46 cents per share, during the three months ended in December. That represented an 83 per cent increase from net income of $372.5 million, or 25 cents per share, at the same time in 2004.

The 2005 results included a $310-million gain triggered by a complex deal that left Yahoo with a 40 per cent stake in Alibaba.com, China's largest e-commerce company.

If not for that gain and other accounting items unrelated to its ongoing operations, Yahoo said it would have earned 16 cents per share. That figure fell a penny below the average estimate among analysts polled by Thomson Financial.

Revenue for the quarter totalled $1.5 billion, a 39 per cent increase from $1.08 billion in the comparable 2004 period.

After subtracting the advertising commissions that Yahoo paid to other websites, the company's fourth-quarter revenue stood at $1.07 billion, in line with analyst estimates.

Although Yahoo's profits have been steadily rising in recent years, the company has struggled to develop an automated system that's as effective at serving up moneymaking ads as Google.

"Frankly, Google has done a better job than us," Yahoo chairman Terry Semel acknowledged during a Tuesday interview.

Both Yahoo and Google display text-based ads on hundreds of websites in addition to their own, but only get paid when the links are clicked on.

Google's knack for enticing clicks has generated a long stretch of stellar earnings growth that has eclipsed Yahoo's. As a result, Google is currently worth twice as much as Yahoo, even though it started three years later.

"It's like we built our house first and someone came along and built an even better house," Semel said.

Investors have been betting Google will surpass analyst expectations Jan. 31 when it's scheduled to report its fourth-quarter earnings.

January 24, 2006 at 12:08 PM in Portals | Permalink | TrackBack (11) | Top of page | Blog Home