Yahoo ‘uninspiring’ earnings forecast disappoints

  • Business
  • Thursday, 21 Oct 2010

SAN FRANCISCO: Yahoo Inc’s uninspiring quarterly sales forecast disappointed Wall Street and underscored how the one-time Internet leader is struggling to keep up with Google Inc and Facebook.

Investors have pressured Yahoo, the leader in display advertising, and chief executive Carol Bartz to deliver growth and revive its stock price, amid talk that private equity firms are exploring a buyout of the US$20bil company.

“She was already on the hotseat. I don’t think she’s off the hotseat. The results have not shown any kind of real improvements,” analyst Yun Kim of Gleacher & Co said of Bartz.

During a conference call with analysts on Tuesday, Bartz defended the company’s progress on her watch, citing improvements to Yahoo’s technology that have made it nimbler, as well as a doubling in operating margins to about 12% in the third quarter.

“We’re working to reverse years of decelerating growth,” said Bartz, who joined in 2009 and has since laid off staff and shed various Web businesses.

Bartz did not comment on the private equity talk. Yahoo shares have gained more than 6% since reports last week that a variety of private equity firms, including Silver Lake Partners, were exploring a potential buyout of the company – possibly in partnership with the likes of AOL Inc or News Corp.

“It would make sense if they did something with AOL because the business is at the point where it’s a game of scale,” said UBS analyst Brian Pitz. “Having the largest amount of display advertising ... and ability to take out a large amount of costs, could be pretty compelling, but it’s easier said than done. There’s a lot of politics involved and reasons why it wouldn’t happen.”

Sources have said any buyout deal would be contingent upon Yahoo selling its 40% stake in China’s Alibaba Group. This would drastically reduce Yahoo’s market value of almost US$20bil now, making a deal more feasible.

But Yahoo has indicated that it is not in any hurry to rid itself of its prized assets.

“To this day no other Internet company outside of China has done as well with their investment in the country as we have,” Bartz said.

Yahoo is one of the world’s most popular online destinations, and the No. 2 U.S. search engine behind Google. But the Web portal is facing increasing competition from social networks like Facebook as well as from Google.

Yahoo said revenue from search ads fell 7% year-over-year, though executives said the 1% increase in revenue-per-search marked the first increase in two years. And the company said it expected the transition to Microsoft Corp’s search advertising system in the United States and Canada to be completed by the end of the month.

Yahoo projected fourth-quarter revenue, excluding traffic acquisition costs, of US$1.125bil to US$1.225bil. Analysts were looking for revenue of US$1.26bil, according to Thomson Reuters.

“We need to deliver on our plan to deliver shareholder value. And when we do that the share price will take care of itself,” chief financial officer Tim Morse told Reuters. “We’re doing a terrific job in some areas. In others, we’re clearly in transition, and I think it’s fair to want to see more from us in the future before people believe fully in the (growth) targets.”

Net income in the three months ended Sept 30 was US$396.1mil, or 29 US cents a share, compared with US$186mil, or 13 US cents a share, in the year-ago period.

Net revenue, which excludes revenue it shares with website partners, totaled US$1.12bil in the third quarter, compared with US$1.13bil in the year-ago period and slightly below the US$1.13bil expected by analysts. — Reuters

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