Yahoo Profit Jumps; Shares Slide
Earnings Disappoint Analysts Seeking 'Google-Like' Quarter

By Mike Musgrove
Washington Post Staff Writer
Wednesday, January 18, 2006

Yahoo Inc. said yesterday that its fourth-quarter profit nearly doubled and revenue was up almost 40 percent, but Wall Street viewed the earnings report as disappointing and sent the Web portal's stock tumbling by more than 13 percent in after-hours trading.

For the quarter that ended Dec. 31, Yahoo said it earned $683.2 million, compared with $372.5 million for the comparable period in 2004. For the 2005 fiscal year, the Sunnyvale, Calif.-based company earned $1.9 billion, compared with $839.6 million the previous year.

Yahoo executives credited the increase to advertisers moving to the Internet and said advertiser spending could double for the company within the next two years.

Analysts agreed that online advertising sales in the United States would probably see substantial increases, with the fastest growth coming from search-based ads. In that arena, Yahoo's market share slipped to 19 percent in November from 27 percent a year earlier. Google Inc. saw its share jump to 60 percent from 47 percent.

Financial analysts had expected earnings of 17 cents per share, excluding one-time gains and tax benefits. Yahoo missed that forecast by a penny, and its stock plummeted $5.15 in after-hours trading to $34.96.

Simply, analysts said, Yahoo's quarter wasn't good enough to wow Wall Street.

"What's disappointing about it is they didn't really trump people's expectations," said Oppenheimer & Co. analyst Sasa Zorovic. "People are now saying: 'Look, I was anticipating more. I didn't get what I anticipated, so I'm going to scale back.'

"For Yahoo, people always hope they will become more like Google, and this quarter was not Google-like," he said. "Google definitely beats and raises expectations. Yahoo was more ho-hum in that sense."

Google is scheduled to report its quarterly results Jan. 31.

In an interview, Yahoo's chief operating officer, Daniel Rosensweig, wouldn't discuss the stock market's reaction to the earnings report. "We don't comment on what other people expect," he said. "From our standpoint, we had a terrific quarter and a terrific year."

In a conference call with analysts, chief executive Terry S. Semel spoke mostly about emerging technologies and future opportunities for the company, focusing on a "significant platform shift" in which new users will access the company's services over cell phones and other mobile devices.

"Users expect their experiences across all their devices to be seamlessly integrated," he said. "This generation -- they don't see this as a paradigm shift; they see it as a way of life."

Both Yahoo and its chief rival, Google, are racing to deliver services and programming such as television shows to computers and cell phones.

This month, for example, Yahoo announced that many of its online services will soon be pre-installed on Nokia cell phones and available to Cingular Wireless customers in the United States. Under the program, called Yahoo Go Mobile, users will be able to access Yahoo's e-mail, photo, calendar, search and other services over their mobile phones.

Yahoo also will experiment with original entertainment programming and content for mobile devices with the hope of introducing the technology to potential programming partners, Semel said.

Traffic across Yahoo's Web properties rose 9 percent in the fourth quarter, to 103.5 million unique Web users, according to Nielsen-NetRatings. The Web traffic research firm said 68 percent of active Web users accessed a Yahoo site.

"One billion people are using the Internet today, and it's only going to get bigger," Semel said. "Yahoo continues to outpace the growth of the worldwide Internet population."

The company has also seen an increase in the number of customers willing to pay fees for Yahoo's services -- 12.6 million in the fourth quarter, up from 8.4 million during the fourth quarter of 2004, Semel said.

Bloomberg News contributed to this report.