Search and Ads Drive Blockbuster Yahoo! Earnings

Yahoo! reported big demand for its branded advertising, combined with continued strong growth in paid search, helped it achieve healthy profits in the third quarter.

Marketing services, which encompass both search and regular online advertising, grew 48 percent from the same period a year ago, accounting for $245.1 million in revenue. The company credited strong demand for its ad products from Fortune 500 advertisers running large-scale campaigns and from tens of thousands of smaller advertisers who run keyword campaigns through recently acquired Overture Services. Branded advertising grew 20 percent. Yahoo! did not break out search’s contribution.

The strong demand drove blockbuster results for the Sunnyvale, Calif.-based company. Revenue for the quarter was $356.8 million, a 43 percent increase from a year ago. Net income was $65.3 million, or 10 cents a share, more than double the profits from the year before.

The results blew past analyst expectations. Those polled by Thomson/First Call expected $337.8 million in revenue and 9 cents in earnings per share.

“We believe Yahoo!, with its large and loyal audience and our ability to offer services along the marketing continuum, is well-positioned to capitalize,” on growth in online advertising, said Terry Semel, Yahoo!’s chief executive.

Semel said Yahoo!’s online advertising was helped by strong demand from traditional advertisers in industries like pharmaceuticals, automotive and entertainment.

“Many of our large clients are spending more money with Yahoo! as they experience how online advertising can contribute to the effectiveness of their campaigns,” he said.

The company’s non-marketing areas also performed well. Sales in its fees business, which includes premium services and its broadband deal with SBC Communications, rose 38 percent to $79.4 million. Yahoo! added 700,000 paying customers in the quarter, reaching 4.2 million. The co-branded broadband offering with SBC was the largest contributor, Semel said.

Sales in Yahoo!’s listings business, which includes HotJobs, rose 26 percent to $32.4 million.

Looking ahead, Yahoo! upped its earnings guidance. The company re-jiggered its revenue reporting to take into account Overture’s traffic acquisition costs (TAC), which are the amount it pays to sites for distributing its paid listings. Yahoo! expects revenue without TAC to be between $462 million and $502 million.