May 13, 2004 11:10 AM PDT

Semel raises Yahoo's subscriber goal

SAN FRANCISCO--In a display of confidence, Yahoo CEO Terry Semel raised his company's target for paid users, as part of his annual presentation to Wall Street analysts and investors.

Semel on Thursday said Yahoo is increasing its target by 50 percent to 15 million new subscribers. That's up from the 10 million goal that he announced during his first analyst day as Yahoo's new chief in November 2001. Semel did not offer a time frame for when the company will reach its new goal, nor did he elaborate on which businesses would fuel the growth.

But the revised projections are a testament to the Web portal's turnaround since the CEO took the reins three years ago.

"Beware--we're quiet," Semel said, addressing the company's competitors. "All we want to do is win, and that's the only thing that excites us."

Semel's comments come during one of the peak moments in Yahoo's history; the company's financials and its stock price continue to soar. In stark contrast, Semel's first analyst day in 2001 was overshadowed by skepticism and doubt about the survival of a dot-com highflier that was relying too heavily on online advertising.

Semel's top priority then was to lessen Yahoo's reliance on advertising to 50 percent of the company's overall revenue by 2004. He also said he wanted to create 10 million "billable relationships" with Yahoo's 80 million registered users at that time.

Little did anyone know that the rise of commercial search and an eventual rebound in online advertising spending would be so dramatic.

In the quarter ending March 31, 2004, Yahoo reported that 83 percent of its revenue came from "marketing services," which comprised paid search and display ads. The news was accompanied by a 2-for-1 stock split. Yahoo hadn't split its stock since January 2000, during the height of the dot-com bubble.

That's not to say the company has failed in its promise of growing revenue outside of advertising. Yahoo watched its subscription-based services grow from almost nothing to $88 million in revenue last quarter. Most of this growth came from its broadband access partnership with SBC Communications, while a chunk of it came from internally developed businesses such as online personals, premium e-mail and fantasy sports. Yahoo ended last quarter with 5.8 million subscribers, most coming from SBC.

While Semel's Yahoo of today hails as a more stable, confident and profitable company compared with the dark year of 2001, much of its turnaround was sparked by acquisitions. The most significant deal under Semel's watch was Yahoo's $1.63 billion acquisition of paid-search company Overture Services in July 2003. Overture was already supplying Yahoo with 20 percent of its revenue through a partnership.

In addition, Yahoo expanded its presence outside the United States by buying Chinese search provider 3721 Network Software for $120 million in November 2003 and French comparison shopping site Kelkoo in March for $579 million. Yahoo also bought a private software company called Mediacode to accelerate its online music efforts.

With all of these moves under his belt, Semel expects online advertising will continue to drive the company's growth. He predicts more advertising dollars will flow into Yahoo as traditional companies spend more on the Web.

"People will spend less time with traditional media and more time on the Internet," he said. "As audiences continue to move, advertising dollars will ultimately catch up and advertising dollars will start chasing audiences."

Other Yahoo executives will talk about their respective divisions throughout the day, including Chief Operating Officer Dan Rosensweig and the heads of Yahoo's search, communications and advertising sales divisions. Chief Financial Officer Susan Decker will wrap up with a speech at the end of the day.

 

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