Yahoo Feels a Growth Pinch in ’06

Although no one came out and said so, Yahoo  executives sure sounded relieved to close the books on 2006 during the company’s fourth quarter and full-year earnings results today.

With good reason: The portal king ended the year with news of lower profits, but kept hopes high about its new advertising platform still in the works.

Yahoo’s fourth quarter profit came in at $269 million (19 cents per share), a drop of just over 60 percent compared to its profit of $683 million (46 cents per share) during the same time a year ago. Although last year’s fourth quarter profit included cash from investments and other income that made this year’s profit look slimmer, revenues grew by a robust 13 percent to $1.7 billion, compared to $1.5 billion during the same, year-ago quarter.

For all the pressure the company may be facing from Google and other search players, the company still held on to its crown as the #1 destination on the Web, and finished out the year with $6.4 billion in revenues, up by 22 percent from last year’s full-year sales of $5.3 billion.

But it also felt the pinch of lower profits. Full-year net income fell by about 60 percent to $751 million (52 cents per share), compared to the $1.9 billion in profit it declared the year before ($1.28 per share).

During a conference call today, Yahoo’s CFO, Susan Decker, blamed the drop on the loss of MSN as a search advertising partner and on the slower roll-out of Yahoo’s new advertising platform, code-named Panama.

Both Decker and CEO Terry Semel seemed eager to close the books on an often-tumultuous 2006 that included Panama’s delayed roll-out, a leaked memo calling for widespread organizational changes and a major reorganization that resulted in the departure of longtime COO Dan Rosensweig.

Small wonder 2007 has high hopes attached. “I am confident that our new structure and concentrated focus on Yahoo!’s key priorities puts us in the best position to take advantage of the many opportunities that we see ahead for 2007 and beyond,” Semel said.

On the call, Semel reviewed Yahoo’s new organization breakdown into three groups: audience, advertising and technology. Semel said he was particularly pleased with Panama’s progress so far this year. He said a “large majority” of Yahoo’s search revenue has already moved to the new advertising platform and that the transition should be complete by the end of 2007’s first quarter.

Decker, in turn, suggested that Panama’s complete adoption would lead to increased profitability for the company, beginning in the second quarter. She said that in the interim, the first quarter should be Yahoo’s slowest in terms of growth in 2007.

She summarized Yahoo’s guidance for 2007 as “cautiously optimistic,” projecting the year’s revenue somewhere between $4.95 billion and $5.54 billion.

Investors initially bid down Yahoo in after-hours trading following the results and more cautious guidance, but shares had ticked up by over 5 percent to $28.54 later in the evening.

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