Yahoo Inc. announced yesterday that it more than doubled its profit from a year ago, thanks to increasing interest from advertisers wanting to pitch products to users of the popular Internet portal and search engine.
But after a surprisingly strong performance in the previous quarter, some investors appeared to be looking for the company to do more than merely meet analysts' expectations, as it did yesterday. Yahoo stock, which doubled over the past year, tumbled nearly 12 percent yesterday afternoon in after-hours trading.
Profit for the Sunnyvale, Calif., company reached $113 million for the quarter ended June 30, or 8 cents a share, up from $51 million, or 4 cents a share, in the same period a year ago.
"The quarter was very good, but it was below the broader expectations that were out there," said Safa Rashtchy, an analyst at Piper Jaffray Cos.
Yahoo's strong first quarter "created the context and expectation that this quarter would have a comparably massive upside," he said.
"This is the first quarter in several that they didn't widely exceed published forecasts," said Marianne Wolk, an analyst at the Susquehanna Financial Group.
Terry S. Semel, Yahoo chairman and chief executive, largely credited growth in online advertising for the record second quarter. "When consumers think of the Internet, more than ever they are thinking about Yahoo," he said. "And when advertisers think of the Internet, more than ever they are thinking about Yahoo."
Advertising made up over 80 percent of the Yahoo's income for the last two quarters. Two years ago, in the wake of the dot-com bust, online advertising was in a slump and so was Yahoo's business. The company scrambled at the time to build businesses that wouldn't rely on ad revenue.
Semel argued yesterday that his company has a diverse portfolio and is not as dependent on advertising these days. The company also saw growth in its other main cash generator: Paid subscriptions are up for premium Web services, in which users pay, for example, to download computer games from Yahoo sites. According to Semel, Yahoo now has 6.4 million paying subscribers, up from 3.5 million a year ago.
Whether Yahoo will be able to continue its renewed success depends largely on how well it continues to compete with the likes of Microsoft Corp. and Google Inc., which are increasingly going after the same Internet businesses as Yahoo with their Web portals and properties.
Google shook things up in April by announcing that it is entering the Web-based e-mail market. Software giant Microsoft just showed off a test version of its in-the-works Internet search engine last week. Microsoft says its goal is to launch the new search engine in 28 markets and 11 languages within a year.
Martin Pyykkonen, analyst at Janco Partners Inc., a Colorado investment firm, said that he thinks it is too early to tell how Microsoft's entry will affect the search engine market. "You have to wait and see," he said. "Microsoft is notoriously late and underwhelming in what they deliver."
Others figure that the online ad market is doing so well that there is room for competition in any case. "They are a very formidable competitor," Deutsche Bank Securities analyst Jeetil Patel said of Microsoft, "but it's been a very robust ad market."