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Yahoo Profit Rises Dramatically

Advertisers Have Warmed to Web, CEO Says

By David A. Vise
Washington Post Staff Writer
Wednesday, January 19, 2005; Page E01

Yahoo Inc. yesterday reported hefty gains in revenue and profit for the fourth quarter and all of 2004, a period that Terry S. Semel, the company's chief executive, referred to as "the year in which we witnessed the beginning of a tipping point in advertising."

The surge in Yahoo profit, officials said, was largely attributable to dramatic increases in ad dollars spent by businesses selling products and promoting their images on the Internet, a sign of the increasingly mainstream nature of Internet advertising, both in the United States and abroad.

Even excluding a large one-time gain, fourth-quarter profit rose 150 percent. (Paul Sakuma -- AP)

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In the fourth quarter, Yahoo earned $372.5 million (25 cents per share), compared with $75 million (5 cents) in the same period of 2003. Revenue for the quarter ended Dec. 31 rose to $1.08 billion, an increase of about 62 percent over the $663.9 million recorded a year ago. Yahoo's fourth-quarter profit included a one-time gain of $185 million from the sale of an investment. Without that one-time gain, profit in the quarter would have been $187 million, still more than double the profit of the same period a year ago.

The top 200 U.S. advertisers on Yahoo spent 39 percent more on ads in the fourth quarter of 2004 than they did in the same period a year earlier, officials said. A significant part of that increase came from ads delivered to computer users searching for information online through Yahoo, which will be 10 years old in March. It also reflected Yahoo's growing user base, as well as the increasing amount of time that existing users of Yahoo's e-mail and other services are spending online.

"We are really pleased that the magic of our strategy is coming together," said Susan Decker, chief financial officer of Yahoo, in an interview.

For 2004, Yahoo earned $839.6 million (58 cents), compared with $237.9 million (18 cents) the previous year. Revenue increased to $3.57 billion from $1.63 billion , a surge of almost 120 percent. The 2004 earnings included one-time gains of $314 million from the sale of investments and other items, including the sale of Google Inc. shares owned by the company.

For 2005, Semel said Yahoo has four major goals: deepen its relationship with existing users, play a greater role in people's online lives, drive continued increases in growth abroad, and bolster its position in online search.

As part of that strategy, Semel spoke of a new co-branded offering with Verizon Communications Inc. that will be offered to computer users this summer. Verizon will provide the high-speed connection while Yahoo will offer an array of online content and services at no additional charge. It follows Yahoo's successful partnership with SBC Communications Inc., which has proved popular among high-speed Internet users.

Semel noted that Yahoo, which used to rely on rival Google to provide it with search technology, had launched its own proprietary search technology and achieved a strong measure of success.

"Although we launched our algorithmic search product just 10 months ago, many analysts and critics believe it is among the best in the world," Semel said.

Decker contrasted Yahoo with Google, saying that Google is a "great competitor" in search-related advertising, where it remains the market leader, but emphasizing that Yahoo has a broader array of content offerings -- as diverse as retail, finance and travel -- and a much larger base of e-mail users.

Both Google and Yahoo now have stock market valuations exceeding $50 billion.

Shares in both companies increased sharply yesterday. In after-hours trading, Yahoo stock, which had closed at $37.18, up 48 cents during the regular trading day, rose more than $1. Google, which went public in August at $85 a share, hit a new high, closing at $203.90 during the regular trading day, up $3.93. After Yahoo's earnings release, Google shares traded above $205 as investors bet that Yahoo's strong results foreshadowed healthy increases at Google.

"Sponsored search remains a tremendous opportunity for the Internet and Yahoo," Semel said. "We are well positioned to grow market share in this rapidly growing market segment."

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