December 12, 2002 4:08 PM PST

Semel paints bright future for Yahoo

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Yahoo CEO Terry Semel painted a rosy picture of the Web portal's future for investors Thursday, saying marketing revenue and paid subscriber numbers will rise significantly next year.

The online giant's marketing services revenue--comprising online advertising, sponsored search results from its deal with Overture, and other promotions--will grow more than 20 percent in 2003, Semel predicted during an investor presentation at the Credit Suisse First Boston Media Week Conference in New York.

Semel said Yahoo expects that subscriptions to its premium services will exceed 2 million by the end of the year, meeting targets it set in October. Yahoo's premium services include e-mail forwarding, personals, extra storage and digital subscriber line (DSL) access with SBC Communications.

"We are stronger and smarter and more well-prepared to meet the challenges ahead," he told investors.

Semel added that Yahoo expects to strike more carriage deals with broadband providers. The Web portal launched a deal with SBC Communications in September, under which Yahoo offers a beefed-up version of its Web page to the telecommunications giant's DSL subscribers.

However, Semel did not offer further details on the performance of the SBC partnership.

The health of the online advertising industry has come under question since last week, when America Online announced its online advertising and e-commerce revenue would drop 40 percent to 50 percent next year. However, AOL's advertising woes are considered unique, since it's only now beginning to phase out the agreements with failed--or failing--dot-com companies that were the source of its revenue shortfall.

Yahoo has also seen its share of hard times caused by the dot-com bust. The company's total revenue dropped from $1.1 billion in 2000 to $717.4 million in 2001. For this year, Yahoo expects revenue to reach between $930 million and $955 million, and earnings before interest, taxes, depreciation and amortization (EBITDA) to reach between $190 million and $200 million--ranges that Susan Decker, chief financial officer at Yahoo, reiterated today.

Broadband deals on the horizon
Key to Yahoo's turnaround plan is revenue diversification, which largely centers on moves to increase its number of paying subscribers. The centerpiece of this plan is its effort to partner with broadband access providers.

Under the deal with SBC, Yahoo gives the company's DSL subscribers access to a smattering of paid services and a souped-up version of its Web page. In return, SBC gives Yahoo a cut from each monthly bill. Yahoo also gets a cut from existing SBC DSL subscribers who switch to the co-branded service.

SBC has about 2 million DSL subscribers, Decker said.

Yahoo has not announced a broadband deal since the announcement of the SBC partnership in fall 2001. However, Semel said he expects cable and DSL companies will want to strike nonexclusive deals with all the Web giants, including Yahoo, in the coming year.

"We will participate (in these deals) over the next year's time," Semel said. "There's no question about that."

These days, though, the market landscape is more like a land-rush than before. Yahoo's two top competitors, AOL and Microsoft, have already struck similar deals with DSL and cable providers. All three are competing for the remaining unpartnered broadband providers.

Microsoft's MSN has similar carriage deals with rival Baby Bells Verizon and Qwest as well as with cable company Charter Communications. AOL, meanwhile, has agreements with corporate cousin Time Warner Cable and cable giant Comcast and is expected to announce more cable deals in the near future.

For Yahoo, the question is whether the Baby Bells and cable companies will want to open themselves to more than one portal player. Indeed, Semel's broadband ambitions are more expansive than signing up just SBC.

"We wouldn't have designed it just to keep it in 13 states," he said referring to Yahoo's broadband product and SBC's market reach.

However, key partners such as Verizon have reached out only to MSN so far. Even AOL, which has bought DSL access in bulk from the Baby Bells, has conceded that it will be hard to lure Baby Bells from their current deals with MSN and Yahoo, a sentiment that could foreshadow a potentially difficult task ahead for Yahoo to pry open Verizon.

When asked whether Yahoo will one day partner with Verizon, Semel replied with a curt "yes."

 

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