Yahoo Beats Expectations but Keeps Guidance Conservative

Company Is at 'Interesting Confluence of Two Currents'

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NEW YORK ( -- It was a bit of good news, bad news for Yahoo's earnings call tonight: The company beat analyst expectations for fourth quarter 2006 but had a soft outlook for the current quarter.
Yahoo CFO Sue Decker is making the transition to a higher role in the company that oversees publishing and advertising relationships.
Yahoo CFO Sue Decker is making the transition to a higher role in the company that oversees publishing and advertising relationships. Credit: Elaine Thompson

Revenue up 13%
Revenue was up 13% to $1.7 billion, mostly due to strong display advertising, and excluding one-time items, profit per share was 16 cents, higher than analysts' projection of 13 cents a share. After factoring out traffic-acquisition costs that Yahoo pays to its partners, sales rose 15% to $1.23 billion, slightly beating analyst expectations.

But the guidance for first quarter was softer than some analysts would have liked -- gross profit projections for first quarter range from $1.12 billion to $1.123 billion, said Yahoo CEO Terry Semel. That projection means the first quarter is the slowest-growing quarter the company expects to have in 2007.

Sue Decker, chief financial officer, said Yahoo was at "an interesting confluence of two currents." One of the currents is an operational one, as Yahoo puts additional manpower and effort behind the transition to a new search platform nicknamed Panama; at the same time, there's a financial current as the company focuses on monetizing Panama. It expects Panama to bear financial fruit in the second quarter of 2007.

Switch just weeks away
Panama, which is expected to help Yahoo make more money on search because it calculates not only bid price but also relevance, was much discussed. The full switch to the new ranking system will take effect Feb. 5, Yahoo announced.

It was a highly anticipated earnings call because it was the first since the online giant restructured its management suite in early December, a period in which Yahoo announced the departure of Chief Operating Officer Dan Rosenswieg (who's leaving in March) and media chief Lloyd Braun and the elevation of Ms. Decker to a higher role that oversees publishing and advertising relationships. It was also the first earnings period since the company's disappointing third quarter, during which Yahoo had warned of softness in the auto and financial-service categories.

Consumer package goods, pharmaceuticals and financial services were all strong categories in fourth quarter, said Mr. Semel. The financial-services strength is notable because it was one that Yahoo had warned was weak in third quarter. He also said that video advertising is something "that'll be significant and it'll get there but it's not quite yet."

Praise for Decker
Mr. Semel praised Ms. Decker's response to analyst questions several times during the call and said a search for a new CFO has just begun as Ms. Decker is transitioning to a larger role at the company. Ms. Decker is widely speculated to be Yahoo's CEO-in-waiting, although Mr. Semel has not talked of retirement.

Jerry Yang, one of Yahoo's co-founders, chimed in on the call with regard to the company's 20% stake in ad-exchange network Right Media. He said the arrangement with Right Media isn't necessarily to sell pages Yahoo couldn't previously sell but to be more efficient in how it sells certain inventory. Ms. Decker suggested Yahoo could even use the exchange to buy ad inventory if needed.
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