Street Beats Up Yahoo Over Ad-Platform Delay

Stock Price Tumbles After Second-Quarter Earnings Release

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NEW YORK ( -- Thanks to continued growth in online advertising, Yahoo reported a 28% boost in second-quarter revenue year-over-year -- the number increased from $875 million to $1.12 billion.
Terry Semel
Terry Semel Credit: Yahoo

But shares of Yahoo took a beating on the announcement that the internet company's new ad platform, code-named Panama, won't be released until the fourth quarter.

Analysts said the disappointing news would likely delay profit gains and signals a lack of technical leadership within the company. Analysts have predicted the new system will result in an immediate 15%-20% increase in revenue for Yahoo.

Competitive disadvantage
The highly anticipated search-advertising upgrade is expected to make pay-per-click advertising more appealing to big-brand marketers and improve click-through rates. As a result, the new relevancy-based platform is expected to bring Yahoo's click-through margins more in line with Google's. The delay, therefore, leaves Yahoo at a clear competitive disadvantage for the time being.

"Yahoo continued to make major strides this quarter against some of our most valuable business initiatives, further strengthening our foundation for ongoing growth," Yahoo Chairman-CEO Terry Semel said in the quarterly earnings report. "Our ability to remain focused on our advertiser and consumer communities, while also continuing to innovate and take advantage of new opportunities in the marketplace, has put us in a great position."

Shares of Yahoo fell $5.89, or 18%, to $26.35 in morning trading on the Nasdaq, bringing the company's stock to a new 52-week low. Yahoo's stock has traded between $28.60 and $43.66 over the past year. Quarterly net income was down 78% at $164 million, which the internet giant attributed to a large year-earlier investment gain of over $500 million. Yahoo's year-earlier second quarter included an after-tax gain of $552 million from the sale of shares in search rival Google, plus settlement of a Yahoo lawsuit over Google's use of its search technology.

Unimpressed overall
Yahoo's earnings per share met Wall Street's expectations, but net revenue of $1.12 billion fell on the low end of analyst's forecasts, which ranged between $1.11 billion and $1.17 billion. Some analysts, however, were even unimpressed by Yahoo's one seeming bright spot -- its revenue growth. "Twenty-eight percent looks like a bit of a softening compared to growth over previous years' corresponding quarters," remarked David Hallerman, an eMarketer Senior Analyst. "I'd normally expect revenue growth somewhere in the mid-30s."

From search marketing to user services, Yahoo faces stiff competition on many fronts. Yahoo Mail still attracts more online display-ad impressions than any other website -- 35.7% in June -- but MySpace's share of impressions is gaining fast, Nielsen/NetRating's AdRelevance reported this week.

Earlier this month, Hitwise named MySpace the most popular site on the web, with 4.46% of all internet visits during the first week of July -- more than Yahoo's e-mail service (4.42%) or Yahoo's home page (4.25%). Traffic to Yahoo's entire network of sites rose 9% year-over-year in the second quarter to 105.7 million, according to Nielsen/NetRatings.

Big expectations for Google
Google, meanwhile, continues to increase its share of all search queries online. As a result, Merrill Lynch earlier this month raised its second-quarter revenue and earnings-per-share estimates for the Mountain View, Calif., company. Estimates for Yahoo were left unchanged.

Merrill raised its earnings-per-share estimate for Google for the second quarter from $2.10 to $2.18 -- excluding stock option expenses -- and its revenue estimate from $1.59 to $1.64 billion. Its net-revenue estimates for Yahoo remained at $1.15 billion, while Yahoo's earnings-per-share remained at 11 cents, including stock option expenses.
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