Waiting on New Ad Program, Yahoo's Profit Drops 11%

Yahoo's first-quarter profit fell 11 percent from the comparable quarter a year earlier, disappointing investors who had hoped to see some early progress from the firm's new advertising program, Panama.

The company said it earned $142.4 million in the quarter ending March 31. Revenue rose 6 percent, to $1.67 billion.

Yahoo said it expected double-digit revenue growth through the rest of 2007 as it moves forward with several initiatives to help it catch up with rival Google. In addition to the rollout of Panama, Yahoo plans to expand an advertising partnership with newspapers and announced an online shopping partnership with eBay's PayPal.

"We continue to make good progress on all those efforts in the first quarter, and we are confident that our hard work and focus will help us in improving our financial performance," chief executive Terry S. Semel told analysts in a conference call. He said he expects Panama to improve how advertisers target certain demographics.

Derek Brown, an analyst with Cantor Fitzgerald in San Francisco, said there was concern that hype for Panama was excessive on Wall Street, perhaps inflating expectations for the first quarter.

Advertisers, he said, think the new system is better than its predecessor but that the company still has a long way to go. And Yahoo, when it announced Panama this year, warned that it didn't expect to see results until the second quarter.

"We believe Yahoo will see a benefit as the year progresses," Brown said. "I would say that expectations are such that Yahoo had better see an improvement."

Semel also responded to last week's announcement that Google plans to purchase Internet advertising company DoubleClick. Yahoo has been a leader in online display advertising and Semel said Google's proposed acquisition "certainly does validate Yahoo's strategy for the past few years. . . . Fundamentally, I think competition benefits consumers and the whole industry."

Yahoo announced a new service yesterday called PayPal Express Checkout that will offer Internet users a new payment system with 2,500 online merchants. The program offers shoppers a faster way to process payments to merchants, the company said. Last year, Google launched a similar program called Google Checkout.

Shares of Yahoo rose 48 cents yesterday, to $32.09. In after-hours trading, though, they were down nearly 8 percent.