Yahoo! beats the street, is optimistic
Published: 10 Apr 2003 09:39 BST
Yahoo! reported better-than-expected earnings results in the first quarter of 2003 and raised its outlook for the year, boosted by growth in its online advertising business.
The Web portal reported a profit of $46.7m (£29.86m), or 8 cents a share, on revenue of $282.9m for the quarter ending 31 March, 2003. That compares with a net loss of $53.6m, or 9 cents a share, on sales of $192.7m during the same period last year.
Wall Street analysts expected Yahoo! to report a profit of 6 cents a share on $273m in revenue.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) reached $84.1m, up from $18.8m in last year's quarter.
The results mark Yahoo!'s fourth consecutive quarter of profitability and its second consecutive quarter of growth in its online advertising revenue. The performance lends legitimacy to executives' claims that the past year has been a turnaround for the Web giant, which suffered a revenue collapse in 2001.
"I think it's beyond a turnaround at this point. They're now growing margins again," said Safa Rashtchy, an analyst at US Bancorp Piper Jaffray.
In an interview with CNET News.com, Yahoo! chief executive Terry Semel said that during the coming year, the company would focus more on innovation and on improving product quality.
"This year, the overall strategy is to make all of our stuff better," Semel said. "If our content -- and the quality of our content -- is the best on the Web, people are going to spend more time with us."
Over the past few quarters, Yahoo! has benefited from lucrative payments from Overture Services, which pays a fee every time someone clicks on links hosted on Yahoo!. In addition to its gains in search, analysts said Yahoo!'s advertising and subscription businesses also did well in the first quarter. These factors helped the company lift its financial outlook again.
Yahoo! raised its revenue expectations for the second quarter to between $295m and $315m and its full-year outlook to between $1.14bn and $1.21bn. The raised outlook is due to solid execution across its businesses as well as to expected contributions from its recent acquisition of search provider Inktomi, the company said.
The Web portal expects 2003 EBITDA to fall in the range of $350m to $380m. Yahoo! also introduced a free cash-flow outlook for 2003 of between $295m and $325m.
Sifting the numbers
Yahoo! broke down the results for its three separate revenue lines: Marketing services; fees; and listings.
Marketing services (which encompass online advertising and the paid search deal with Overture, jumped 38 percent to $190m. Executives said that the revenue line was boosted by growth in revenue from Overture business and from business from traditional advertisers.
Semel said during a conference call that excluding payments from Overture, marketing services revenue increased by a "double-digit percentage" over last year.
The Web company's fees and revenue rose 61 percent to $63.7m. The numbers include Yahoo!'s co-branded digital subscriber line (DSL) business with SBC Communications, online personals and email storage.
Paid subscribers increased to 2.9m from 2.2m in the last quarter, according to Yahoo! About 245,000 to 280,000 of the net subscriber gains came from SBC DSL subscribers switching to the SBC Yahoo! co-branded service, Susan Decker, Yahoo!'s chief financial officer, said during the conference call. (The Web company gets a cut of the monthly bill of users who have migrated over.) However, Decker added that the number of migrations should tail off by the end of next quarter.
One sore spot in the fees business was Yahoo!'s enterprise services business, which reported a loss of $6m to $7m in revenue due to the de-emphasis of its event-based Webcasting service and the sale of other businesses.
Yahoo!'s listing revenue, which encompasses online job-listing subsidiary HotJobs, accounted for $29.3m in revenue -- an 89 percent increase from last year.
All signs indicate that Yahoo! will continue its upward growth as it sheds itself from the bloodletting during 2001. Whether or not today's earnings signal an overall comeback for online advertising remains to be seen, as Yahoo! has been forced to rethink its approach to advertisers much earlier than many others in the market.
"I think the story now is how (online advertising revenue) grows for its core marketing services," said Jeffrey Fieler, an analyst at Bear Stearns.
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