Yahoo shares plunge 13%

first_imgSAN FRANCISCO – Yahoo Inc.’s fourth-quarter profit nearly doubled as advertisers continued to shift their spending to the Internet, but it wasn’t enough to live up to the lofty expectations for the Web’s most heavily trafficked destination. Yahoo’s shares plunged by more than 13 percent after the report’s release Tuesday. The Sunnyvale-based company said it earned $683.2 million, or 46 cents per share, during the three months ended in December. That represented an 83 percent 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 percent stake in, China’s largest e-commerce company. AD Quality Auto 360p 720p 1080p Top articles1/5READ MORESanta Anita opens winter meet Saturday with loaded card 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 totaled $1.5 billion, a 39 percent increase from $1.08 billion in the comparable 2004 period. After subtracting the advertising commissions that Yahoo paid to other Web sites, the company’s fourth-quarter revenue stood at $1.07 billion, in line with analyst estimates. Yahoo shares gained 21 cents to close at $40.11 on the Nasdaq Stock Market, then plunged $5.40, or 13.5 percent, in extended trading. Because Yahoo is the first major Internet company to disclose how it fared during 2005’s final quarter, its fourth-quarter report has become a focal point for investors trying to gauge just how much more advertising migrated online during the busy holiday shopping season. Yahoo’s earnings shortfall appeared to have a ripple effect on another Internet bellwether, online search engine leader Google Inc., whose shares shed $16.11, or 3.5 percent, in extended trading. Google’s market value already had climbed 13 percent so far this year in anticipation that its profit will exceed analyst expectations when its fourth-quarter results come out Jan. 31. This marks the second consecutive quarter that Yahoo has reported robust financial growth only to have investors punish its stock. The pattern reflects the high hopes riding on Yahoo’s stock as investors bet on the company’s ability to cash in on the Internet advertising boom. Although Yahoo’s profits have been steadily rising in recent years, the company still hasn’t been able to come up with a formula that’s as effective at serving up moneymaking ads as Google, its biggest rival. “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 Web sites 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 is a younger company. A growing number of people also are relying on Google to process search requests, another factor depriving Yahoo of an opportunity to make more money. Through November, Google held 39.8 percent of the U.S. search market, up from 34.6 percent at the same juncture in 2004, according to comScore Media Metrix. Meanwhile, Yahoo’s share has dropped to 29.5 percent, down from 32 percent in November 2004. Semel has been promising to introduce improved advertising algorithms later this year, a pledge he reiterated Tuesday. But he stressed it will be a gradual process that’s unlikely to have a significant impact on Yahoo’s earnings until 2007. Drumming up more advertising will become even more important later this year when Yahoo will lose one of its biggest partners, Microsoft Corp.’s, which plans to launch its own marketing network this summer. Yahoo said Tuesday that it expects to lose about $120 million in advertising revenue generated by its partners this year. Besides the Microsoft setback, the erosion also reflects an expectation that Yahoo will have to share more revenue with its other remaining partners. Despite those challenges, Yahoo management predicted the company will continue to thrive as advertisers ante up to reach its vast audience. Yahoo ended 2005 with 365 million users, a 21 percent increase from 2004. In an attempt to become less dependent on advertising, Yahoo has been selling more services, such as high-speed Internet access and matchmaking, to its visitors. The company ended the year with 12.6 million subscribers, an 11 percent increase from 11.4 million in September. The subscribers paid $186 million in fees during the fourth quarter, a 38 percent increase from the same time in 2004. Spurred by its steady growth, Yahoo added another 674 workers during the fourth quarter, expanding its payroll to 9,816 employees at the end of 2005. Excluding its ad commissions, Yahoo forecast its 2006 revenue will range from $4.6 billion to $4.85 billion – a 24 percent to 31 percent increase from 2005. The average 2006 revenue estimate among analysts is $4.77 billion, according to Thomson Financial. For all of 2005, Yahoo earned $1.9 billion, or $1.28 per share, on total revenue of $5.26 billion. Net income for 2004 totaled $839.6 million, or 58 cents per share, on total revenue of $3.57 billion. 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set!last_img

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