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Earnings preview: Yahoo slump may have eased in 4Q

Mon, 01/25/2010 - 3:01am
MICHAEL LIEDTKE - AP Technology Writer - Associated Press

Internet pioneer Yahoo Inc. is scheduled to report its fourth-quarter results after the stock market closes Tuesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Having just completed her first year as Yahoo's chief executive, Carol Bartz is facing more pressure to pull the company out of a financial funk that has included three consecutive quarterly revenue declines of at least 12 percent.

There's a good chance that Yahoo's fourth-quarter results will show some signs of progress, although another drop in revenue is expected.

Yahoo should benefit from the uptick in Internet advertising that apparently occurred late last year as marketers exhausted their budgets and appealed to increasingly Web-savvy holiday shoppers.

That trend helped Google Inc. boost its fourth-quarter revenue by 17 percent.

But Google gets most of its money from short text ads shown alongside search results and other Web content. Yahoo has been falling further behind Google in this lucrative market for years, one of the main reasons the company has been mired in a slump since 2005.

Bartz gave up the chase last year when she agreed to allow rival Microsoft Corp. to power Yahoo's search engine in return for 88 percent of the ad revenue generated from the text ads that get clicked at Yahoo's Web site. The partnership is expected to begin within the next few months if it's approved by antitrust regulators.

Yahoo makes most of its money in display advertising — a niche consisting of online billboards and other more visual messages. Those marketing campaigns tend to require larger, long-term commitments that are unlikely to be made until advertisers see more evidence that the economy is strengthening.

Another factor working against Yahoo: it's not as strong in overseas markets as Google, which gets 53 percent of its revenue outside the United States.

Although Yahoo's revenue has been sagging, Bartz has been out to squeeze out more profit by cutting costs. The streamlining included the elimination of about 2,000 jobs and the closure or sale of services that were unprofitable or no longer fit into Yahoo's plans.

Bartz has indicated she is ready to expand Yahoo's payroll again so more people were probably hired in the fourth quarter.

BY THE NUMBERS: Analysts polled by Thomson Reuters, on average, predicted that Yahoo will earn 11 cents per share on revenue of $1.23 billion after subtracting commissions paid to advertising partners.

ANALYST TAKE: ThinkEquity analyst William Morrison says Yahoo probably fared relatively well in display advertising during the fourth quarter, thanks to "end-of-year budget flushes." But he's worried about the financial fallout from Yahoo's dwindling share of the lucrative search market, and doubts the Microsoft partnership will help that much.

"Over the past 10-15 years, we have yet to see a company gain market share after outsourcing its search...to a third party, and we doubt Yahoo will be the first," he wrote in a recent research report.

WHAT'S AHEAD: Yahoo is still looking for a buyer for its help-wanted service, HotJobs, and gearing up to begin the transition to the Microsoft partnership. As part of the deal, Microsoft is supposed to hire at least 400 Yahoo workers.

STOCK PERFORMANCE: Yahoo shares fell 6 percent in the quarter, but still gained 38 percent for the entire year.

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