Yahoo May Say Profit Fell as Google, MySpace Took Ad Sales
Flags fly outside the Yahoo! Inc. headquarters — Yahoo! Inc., owner of the most- visited U.S. Web site, may report a sixth straight drop in quarterly profit today as display-advertising growth slowed and Google Inc. extended its lead in Internet searches.
Yahoo’s second-quarter net income probably fell 6.9 percent to $153 million, or 11 cents a share, from $164.3 million, or 11 cents, a year earlier, according to the average of 27 analysts’ estimates in a Bloomberg survey. Revenue may have risen 11 percent to $1.24 billion, the survey showed.
Co-founder Jerry Yang, who replaced Terry Semel as chief executive officer last month, reorganized the sales staff to win back buyers of the banner advertising that runs on Web pages. Customers placed more of those ads on social-networking sites such as MySpace and Facebook, while Yahoo continued to lose search-ad business to Google.
“Google is continuing to increase its search share and we don’t see any end in sight,” said Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Co. in New York. While Yahoo may be able to regain momentum in display sales, “we haven’t seen any evidence of it yet,” he said.
Lindsay rates Google “outperform” and Yahoo “market perform.”
Sunnyvale, California-based Yahoo, which is scheduled to report results after U.S. markets close today, said last month sales would be at the middle to low end of its $1.2 billion to $1.3 billion forecast because of slowing banner-ad growth.
First Moves
Yahoo makes its money selling display advertising, which includes the graphical banner ads and newer animated spots with videos, and search-linked ads, the four-line text spots that appear next to search results.
In his first move as CEO, Yang, 38, combined the search and banner-ad sales teams so customers can buy different ads from the same sales person. He promoted David Karnstedt, who oversaw search ads, to head of North American sales.
Yahoo in February introduced Project Panama, an advertising program designed to make advertisers’ Web links more relevant to searches and more likely to be clicked on by users. The company said last month that the software was boosting results.
The stock has fallen 17 percent in the past year, compared with a 37 percent gain for Mountain View, California-based Google. Yahoo shares rose 12 cents yesterday to $26.70 on the Nasdaq Stock Market.
Yahoo spokeswoman Joanna Stevens declined to comment for this story. In an interview last month, she said the company has seen a shift in spending as companies “experiment with different forms of display advertising.”
Slowing Growth
Sales growth in banner advertising slowed to 20 percent in the first three months of this year from 38 percent in the first quarter of 2006, said Jefferies & Co. analyst Youssef Squali. It probably slowed further to less than 10 percent last quarter, he estimated. Those ads account for about 40 percent of Yahoo’s sales.
Yahoo’s share of U.S. Internet queries dropped to 21.5 percent in May from 22.9 percent a year earlier, while Google jumped to 56.3 percent from 49.1 percent, according to New York- based Nielsen//NetRatings.
The U.S. market for ad sales on social networking sites, dominated by Facebook Inc., a privately owned company based in Palo Alto, California, and News Corp.’s MySpace, will more than double to $900 million in 2007 and reach $2.5 billion in 2011, according to research firm EMarketer Inc. in New York.
To try to regain momentum, Yahoo this month bought the 80 percent of New York-based Right Media Inc. it didn’t already own for $680 million, giving it a company that does online- advertising auctions.
Project Panama
Eighteen analysts suggest buying Yahoo’s shares, 17 recommend holding them and three have “sell” ratings, according to data compiled by Bloomberg.
Cowen & Co. analyst Jim Friedland in New York doesn’t see Yahoo’s position improving. He rates Google “outperform” and Yahoo “neutral.”
“We believe that the gap between Yahoo and Google on ad relevancy remains wide and Google is not standing still,” Friedland said in a July 11 report.
Source by bloomberg.com
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