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Yahoo Still Second to Google but Doing Well, Search Engine Firm Delivers Stellar Earnings Results for Third Quarter

Posted on: Friday, 21 October 2005, 03:00 CDT

By MICHAEL LIEDTKE

THE ASSOCIATED PRESS

SAN FRANCISCO - Yahoo Inc.'s profits keep accelerating, but the Internet icon still can't seem to grow fast enough to keep pace with online search engine leader Google Inc.

The Sunnyvale, Calif.-based company delivered another quarter of stellar results Tuesday, reporting net income and revenue that exceeded analyst expectations for the three months ended in September.

"The whole business is going gangbusters," Dan Rosensweig, the company's chief operating officer, said Tuesday in an interview.

Now Yahoo can only hope it's not upstaged Thursday when Google - probably its biggest rival - is scheduled to detail its third- quarter performance.

Since Google went public 14 months ago, its financial growth has consistently outstripped Yahoo's - a pattern that has been reflected in the stocks of the two companies.

While Yahoo's market value has declined by about 10 percent so far this year, Google's has climbed 56 percent.

"Investors have been leaving Yahoo and moving to Google," said Piper Jaffray analyst Safa Rashtchy. He predicted that trend will end if Yahoo continues to perform like it did in the third quarter.

Yahoo earned $253.8 million, or 17 cents per share, for the period. That was essentially unchanged from net income of $253.3 million, or 17 cents per share, at the same time last year when Yahoo realized a $129 million windfall by selling part of its stake in Google.

Yahoo has since sold all its holdings in Google and used the proceeds to invest in other ventures, such as Chinese e-commerce firm Alibaba.com. The company also is competing against Google to buy a minority stake in Time Warner Inc.'s AOL.

Revenue for Yahoo's latest quarter totaled $1.33 billion, a 47 percent increase from $906.7 million last year.

If not for a $16 million gain from the sale of another investment and an unusually low tax rate during the quarter, Yahoo would have earned 15 cents per share, said Susan Decker, the company's chief financial officer.

That figure still exceeded the estimate of 14 cents per share among analysts surveyed by Thomson Financial.

After subtracting the commissions that Yahoo paid to its advertising partners, Yahoo's third-quarter revenue totaled $932 million - a figure that also beat the mean analyst estimate of $918 million.

Yahoo's recent streak of prosperity has been propelled by advertisers that have been boosting their online budgets to reach consumers who are spending more of their free time on the Web.

Yahoo has been in a prime position to capitalize on the trend because its Web site has built a huge audience during its first decade in existence. The company ended the quarter with 191 million active registered users, a 22 percent increase from 157 million last year.

"The Internet and Yahoo are firmly established as 'must buys' for brand advertising," Yahoo Chairman Terry Semel said during a Tuesday conference call with analysts.

Although Yahoo is sitting in a sweet spot, analysts are hoping Yahoo can become more effective at converting its online traffic into profit-producing clicks on the advertising links displayed next to its search results.

The so-called "click-through" rate in Yahoo's advertising network has been hovering around 11 percent since last summer while Google's has increased from 16 percent to 20 percent, according to comScore Media Metrix.

Yahoo's earnings would improve by 3 cents per share - about $45 million - for every percentage point increase in the advertising click-through rate, estimated Citigroup analyst Mark Mahaney.

The company is working to increase the click-through rate, executives assured analysts Tuesday. Some of the improvements are expected to surface next year.

Another factor restraining Yahoo's growth has been a recent loss in its search engine market share. Yahoo's share in August stood at 29.7 percent, down from 30.6 percent in the prior year, comScore said. Meanwhile, Google widened its lead to a 37.3 percent share, up from 36.1 percent.

Source: Charleston Daily Mail

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