Yahoo's final quarter profits plummet

24-01-2007

by Ciara O'Brien

Yahoo may have turned a corner in its run of disappointing results, boosting revenue by 13 percent year-on-year.

This is the first time in more than a year that the internet firm has managed to surprise financial experts. Revenue in the fourth quarter reached USD1.7 billion, 13 percent more than in the same quarter of 2005 when revenues totaled just over USD1.5 billion. Marketing revenues showed a similar rise, growing from USD1.32 billion to USD1.4 billion for the quarter.

Gross profit rose a decent 12 percent to USD1.012 billion, while revenue excluding traffic acquisition costs increased 15 percent to USD1.23 billion.

The final annual quarter is widely considered the most lucrative for search engines, who typically see a surge in advertising revenue in the run-up to the festive season.

However profits for the quarter plummeted an eye-watering 61 percent to USD268.7 million compared to a year earlier, which translated into USD0.19 per share. But this is not as gloomy as it may first have appeared -- the large drop can be partly attributed to a once-off gain that boosted the results in 2005, when Yahoo sold its Chinese division to Alibaba.com.

Meanwhile, earnings before taxes and charges totaled USD540 million for the quarter, 18 percent more than the same period a year earlier.

However operating income for the quarter fell 6 percent to USD308 million, including USD95 million for stock-based compensation expenses.

Despite this, Yahoo bosses were upbeat. "I am pleased with the progress Yahoo made in the fourth quarter. We successfully addressed many of the challenges we faced in the third quarter and made aggressive moves to deliver on a number of strategic goals that we set forth for the organisation," said chief executive Terry Semel.

The celebrations may be short-lived though.

Rival search giant Google is set to release its results next week, which could put a dampener on Yahoo's elation. The general consensus is that Google will blow analysts' expectations out of the water.

Yahoo has also revealed its full-year figures. Total revenue for 2006 rose 22 percent to nearly USD6.5 billion but this did not translate into increased profits with operating income for the year down 15 percent from USD1,108 million to USD941 million.

"We generated very solid growth and profitability in the fourth quarter and full year 2006, putting the company in a strong financial position and looking forward, we are very optimistic about the potential of our search monetization initiative to improve the value of search for Yahoo and our partners," said the company's chief financial officer Susan Decker.

Yahoo announced that it was planning to get its upgraded advertising system up and running a month ahead of schedule, at the beginning of February. Code-named Panama, the internet firm is hoping that it will be the tool that helps it beat Google in the search stakes.

This is only part of Yahoo's dedicated assault on Google's market share. At the Consumer Electronics Show in Las Vegas, Yahoo announced a new mobile search engine, OneSearch. The search engine is designed to deliver answers into the search results, in addition to web links, for example, getting sporting event results by searching for the team's name.

Yahoo also partnered with IBM in December to provide enterprise search applications for large businesses and organisations.