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Yahoo Reports Profit on Premium Services

The Internet firm surpasses analysts' expectations with solid results in the fourth quarter. Company raises its 2003 outlook.

January 16, 2003|James Bates | Times Staff Writer

Yahoo Inc.'s search for a solid turnaround was rewarded Wednesday when it posted better-than-expected earnings of $46.2 million in the fourth quarter, its third straight moneymaking quarter.

The Sunnyvale, Calif., company's 8-cents-a-share results compare with a loss of $8.7 million in the year-earlier quarter, and were 2 cents higher than Wall Street's expectations.

It also came amid a 51% increase in revenue, to $285.8 million. In addition, the operator of the popular search engine revised upward its revenue and earnings estimates for 2003.

"The turnaround is ahead of schedule," said analyst Jordan Rohan of SoundView Technology Group.

The strong swing to profitability for the once highflying company, which had foundered amid the dot-com bust two years ago, has been orchestrated by former Warner Bros. studio chief Terry Semel, who became chief executive in 2001. "The report card is in, and the results speak for themselves," Semel said.

Yahoo's results were boosted by growth in fees charged to users for such services as additional mailbox space and personal ads, as well as money from advertisers who pay for prime ad space, called sponsored searches.

Those efforts are part of Semel's strategy to reduce Yahoo's dependence on traditional Internet banner advertising. In an interview, Semel said the number of Yahoo users paying for services, now at 2.2 million, should grow 50% this year.

Yahoo's advertising revenue jumped 31% in the fourth quarter, to $177.5 million. The company has especially benefited from a partnership with Pasadena-based Overture Services Inc., which provides the sponsored searches that appear on the usual search-engine results. Rohan estimated that Yahoo's fourth-quarter revenue from Overture was $42 million.

Semel also said improved technology and the increasing spread of broadband service increased ads from auto, entertainment and packaged goods companies because they believe they can create ads on Yahoo's site that look like TV spots. For example, he said, Yahoo features a movie trailer each Friday that is viewed by more than 1 million users.

Yahoo said it expects revenue in 2003 of $1.15 billion to $1.22 billion, compared with previous estimates of $1.08 billion to $1.18 billion. Earnings before interest, taxes, depreciation and amortization should be as high as $330 million in 2003, Yahoo predicted, compared with a high of $300 million previously forecast. Yahoo expects to benefit from growth tied to a broadband Internet access partnership with SBC Communications Inc.

For the year, Yahoo's net was $42.8 million, or 18 cents a share, from a loss of $92.8 million in the year-earlier period. Revenue rose 33%, to $953.1 million.

Yahoo shares fell 12 cents to $19.58 in Nasdaq trading before the announcement, and fell to $18.37 in after-hours trading. Shares have doubled in the last three months, and some analysts are cautioning investors because they believe the recent surge has made the stock expensive relative to its earnings.

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