Yahoo Revenue Dips in Q4, But Shows Signs of Life

yahoo earnings

Yahoo (NASDAQ: YHOO) today reported financial results for the fourth quarter of 2009, posting an overall decline in revenue from the comparable period in 2008, but still meeting Wall Street’s expectations and showing signs that the company’s slumping advertising business is on the upswing.

Yahoo posted earnings of $119 million, or 11 cents per share, in line with analysts’ expectations and reversing a $278 million loss, or 22 cents per share, in the fourth quarter of 2008.

Fourth-quarter net revenue dipped to $1.26 billion from $1.38 billion, but that was slightly ahead of analysts’ expectation of $1.23 billion, according to polling by Thomson Reuters. That figure that excludes the commissions paid to Yahoo’s advertising partners.

In the meantime, Yahoo posted overall revenue for the quarter of $1.73 billion, down 4 percent from the same period in 2008, but still an improvement over the 12 percent annual decline Yahoo has posted over the first three quarters of 2009.

Display revenues on Yahoo properties increased 26 percent over the third quarter, while search revenues were up 4 percent, giving the embattled company hope that the recession is abating and its turnaround strategy is beginning to bear fruit.

“The fourth quarter marked a strong finish to 2009, which was a transformative year for Yahoo,” CEO Carol Bartz said in a statement. “We beat the high end of our revenue guidance, saw demand for premium display advertising improve significantly, and grew owned and operated search advertising revenue sequentially for the first time since the third quarter of 2008.”

Yahoo reported overall revenues for 2009 of $6.46 billion, a decline of 10 percent from 2008 driven in large part by the recession.

But for some analysts, Yahoo was in line to bounce back the strongest as the recession appears to ebb.

“We continue to like Yahoo shares and it remains our top pick for 2010,” Doug Anmuth, an analyst who tracks Internet companies for Barclays Capital, wrote in a research note earlier this week.

“Yahoo is well leveraged to an ad rebound in both display and search, and we believe that display in particular will show stronger trends in 4Q and into 2010.”

In the meantime, Yahoo’s ad mix is in a bit of a limbo as it continues to await approval from the Justice Department, which is conducting an antitrust review of its search-advertising pact with Microsoft (NASDAQ: MSFT), a deal the companies brokered in an attempt to better compete with search leader Google (NASDAQ: GOOG).

Yahoo executives have said they expect the deal to close in the first quarter of this year.

Speaking on a conference call with financial analysts, Bartz said that Yahoo does not expect to begin netting money from the revenue share through the Microsoft deal until 2011, after the companies’ advertising and engineering operations have been integrated.

She reiterated the company’s commitment to continue to compete in search irrespective of the deal, both in terms of growing query volume and improving the monetization rates per search.

But Yahoo may be even more bullish on its fortunes in display.

“While many of you didn’t believe me, I kept saying through 2009 that brand advertising would come back. It always has,” Bartz said on today’s conference call. “You can’t position a brand with keywords.”

She added, “We have some of the best, if not the best, premium inventory on the Internet.”

Over the past year under Bartz’s tenure, Yahoo has redesigned some of its major properties, including its home page, which she said has sold out of inventory on several occasions, and its search and e-mail services.

Last year, Yahoo launched a major global ad campaign that was in large part aimed at advertisers in an effort to remind them that after all the turmoil the company has been through in recent years, it remains one of the most popular destinations on the Web.

Bartz said that the domestic portion of that campaign is now shifting gears to focus more on individual products that the company offers, with less emphasis on re-energizing the Yahoo brand.

As much effort as Yahoo has spent building out its content portfolio, Bartz said the company continues to grapple with the challenge of targeting ads based on users’ interests and preferences.

“Truth be told, no one has uncovered the holy grail of making advertising as relevant as content is 100 percent of the time,” she said. “If we can do this, we can create a better experience for both the advertiser and the user.”

Looking ahead to 2010, she said Yahoo is on a path of investment and growth, seeking to tamp down speculation that she plans to jettison numerous properties that don’t fit with the company’s vision.

Earlier this month, Yahoo unloaded the open source e-mail provider Zimbra to VMware, and Bartz acknowledged that there could be a few more such deals over the coming year, but that Yahoo is not headed for a firesale.

“2010 is not about divestitures for Yahoo,” she said. “For us, 2010 is about acquisition and investments,” she added, though she was quick to caution that Yahoo is not planning any large-scale purchases, but rather smaller, more targeted properties that could fill a niche.

Update adds comments from conference call with analysts.

Kenneth Corbin is an associate editor at, the news service of, the network for technology professionals.

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