April 8, 2003 12:24 PM PDT

Yahoo earnings seen to be on track

Wall Street analysts are expecting Yahoo to report its fourth consecutive profitable quarter Wednesday, fueled by improvements in its core online advertising business.

The Web portal is expected to post earnings of 6 cents a share on $273 million in revenue for the first quarter of 2003, according to First Call consensus estimates. Yahoo in January said it expected revenue to reach between $225 million and $275 million, and earnings before interest, taxes, depreciation and amortization to be between $60 million and $70 million for the first quarter.

If the company meets these expectations, it would signal further evidence that the company has turned a corner from its financial misfortunes during the dot-com bust in 2001. Central to proving its turnaround will be whether the company can show stronger signs of online advertising growth.

Some financial analysts last quarter estimated that Yahoo's core online advertising revenue grew in the low double digits from the previous year. Although much of Yahoo's profitability is boosted by its relationship with commercial search engine provider Overture Services, which analysts estimated paid Yahoo between $35 million and $40 million in cash last quarter, analysts expect double-digit online advertising growth to continue.

Goldman Sachs analyst Anthony Noto expects a 16 percent increase in online advertising revenue from 2002, while First Albany's Youssef Squali expects a 12 percent increase, the analysts wrote in notes to investors. The analysts attributed some of the gains to increased online spending from traditional advertisers.

Despite year-over-year increases, online advertising is expected to show a sequential decline, attributed to seasonality since the fourth quarter is usually the busiest period.

Wednesday's earnings report will also offer a progress report on the company's ongoing campaign to diversify its revenue to subscription-based services. It will also mark the first quarter that the company separates its fees and listings revenue, which previously were lumped into one figure.

The separation, announced last quarter, was a way for the company to highlight its bright spots, such as its online personals business, while grouping its lackluster commerce business into a different area. Yahoo's e-commerce-related revenue grew marginally from $18.3 million in the third quarter of 2002 to $19 million in the fourth.

The success of Yahoo's subscription businesses will also depend on areas such as its co-branded digital subscriber line service with SBC Communications and the launch of other premium services such as its streaming media service Yahoo Platinum.

As of last quarter, Yahoo reported 2.2 million paid subscribers, encompassing areas such as online personals, e-mail storage and Internet access.

Analysts will also be listening for further clarity on Yahoo's search business. The company closed its acquisition of Inktomi last month, which analysts expect will lessen Yahoo's dependence on search competitor Google's technology. Although Yahoo this week unveiled a revamped search service, elements of Inkomi, notably its paid search results business, will not be introduced until later.

In an earlier interview, Jeff Weiner, who runs Yahoo's search division, would not say whether the company had definitive plans to swap Google out for Inktomi. However, he said the company was "maximizing" its flexibility to become less dependent on one search provider.

 

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