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Home / Business / Companies

Boo-hoo for Yahoo! as profits slide

18 Jul, 2007 05:00 PM4 mins to read

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Jerry Yang needs to show he is open to change - and capable of tackling Google. Photo / Reuters

Jerry Yang needs to show he is open to change - and capable of tackling Google. Photo / Reuters

KEY POINTS:

SAN FRANCISCO - Yahoo!'s chief executive is promising a new strategy to turn around the fortunes of the online search giant, which reported a dip in quarterly profit yesterday.

The company also gave a weaker-than-expected forecast for the rest of the year as corporate advertisers spent less on
its online advertisements.

Jerry Yang, the company's co-founder who took the CEO job in a June management shakeup, promised a new strategic plan as he sought to convince investors he is open to change and able to take on rapidly growing rival Google.

"I intend to spend the next 100 days or so focused on mapping out a strategic plan," Yang told Wall Street analysts on a conference call.

"There are no sacred cows."

He said Yahoo! has three priorities: Help advertisers gain insight into Yahoo! customer interests, create a more open technology platform for internet users and arrange more partnerships such as those struck in the past year with eBay, Comcast and newspapers.

RBC Capital Markets analyst Jordan Rohan said he remains convinced Yang and Susan Decker, the former chief financial officer who took over as president last month, are in favour of a longer-term, slower-growth strategy.

"It just reminded me of current US military struggles - troop surges and all that stuff," Rohan said following the conference call.

"It is frustrating to investors who clearly want the company to realise its asset value quickly."

Wall Street remains impatient following the management changes and wants to see significant job cuts, a renewed focus on its internet media business, the outsourcing of web search to either Microsoft or Google, and a potential combination with another major internet player.

Net income for the second quarter fell to US$161 million ($203 million) from the year-earlier quarter's US$164 million.

The earnings were in line with the company's previously lowered forecast and Wall Street's adjusted expectations.

Revenue excluding the cost of payments to advertising partners, or so-called traffic acquisition costs, rose 11 per cent to US$1.24 billion, in line with lowered Wall Street forecasts after the company warned of weaker results in June.

By contrast, Google, the leader in search and pay-per-click advertisements, is expected to show at least four-times-faster revenue growth in its own quarterly report this week.

Internet research firm eMarketer said it expects Google to grab 27.4 per cent of the estimated US$21.7 billion US online advertising market this year, while Yahoo's share could fall to about 16.3 per cent, down from 19.4 per cent in 2005.

Yahoo! has disappointed investors in five of the last six quarters and seen its share price drop roughly 30 per cent since the start of last year.

Total revenue rose 8 per cent to US$1.70 billion.

Gross marketing revenue from online advertising sales rose 7 per cent to US$1.49 billion, aided by an 18 per cent increase in sales from the Yahoo! network of owned and operated sites to US$887 million.

Yahoo! forecast revenue excluding payments to advertising affiliates of US$4.89 billion to US$5.19 billion for this year. It had previously expected it to be US$4.95 billion to US$5.45 billion.

Third-quarter margins will fall to a range of 32 per cent to 34 per cent, their lowest levels for the year, Yahoo! said.

Yahoo! display advertising is also under pressure from the popularity of lower-price advertisements on social network sites such as MySpace and Facebook, Decker said.

Intel margin woe

Intel, the largest maker of computer processors, posted a rise in second-quarter earnings yesterday but profit margins missed the company's target and its shares fell nearly 5 per cent.

"The gross margin number is a surprise," said JoAnne Feeney, an analyst with FTN Midwest Securities, adding that Intel did well in revenue and earnings per share but that she wanted to better understand a decline in chip prices.

Gross margin in the second quarter was 46.9 per cent, short of the company's forecast of 48 per cent. Intel said it expected the margin to be 52 per cent in the third quarter. Intel has clawed back market share from smaller rival Advanced Micro Devices thanks to a slate of new processors and price cuts on older ones. AMD has fought back by cutting prices, and it is set to start selling a new processor in August.

Intel's margins also could have been hit by a shift away from more profitable notebook computers towards desktops, as well as a faster introduction of advanced production techniques, which carry high start-up costs.

For its second quarter, Intel posted net earnings of US$1.3 billion ($1.6 billion), or 22c a share, compared with US$885 million, or 15c a share, a year earlier. Revenue was US$8.7 billion, up 8 per cent from a year earlier. Shares fell 4.9 per cent to US$25.05.

- REUTERS

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