Web portal giant Yahoo! said it continues to suffer from falling advertising revenues, but reported Wednesday evening that it narrowly made earlier promises of a pro forma quarterly profit.
Although it’s considered a leading barometer of the online ad industry, the Sunnyvale, Calif.-based company attributed much of its success in meeting before-charges profitability estimates to premium and business services — that is, paid areas and technology services.
Such services represent only 20 percent of the $166.1 million that Yahoo! saw in revenue during third quarter, however, a fact that weighed on the company’s pro forma profit of $8.4 million, $0.01 per share. That’s in line with previous guidance and analysts’ expectations, according to Thomson Financial/First Call consensus.
To stem future losses, chief executive Terry Semel said Yahoo! would undertake another restructuring, which could result in more layoffs. The company cut 12 percent of its 3,510-person workforce in April.
“We have conducted a strategic review of all 44 of our business units at Yahoo! and have determined the key, ‘go forward’ priorities, around which we will create enhanced and new revenue streams,” he said. “In order to increase efficiency and to position the company for continued growth, we will focus our business around these key areas.” Semel said the firm would release more information on Nov. 15.
Yahoo!’s top executive also gave hints as to how the company would try to decrease its dependence on advertising in the future, including one premium service that he called the portal’s “biggest strategy, which … will include transactional, subscriptions and bundled premium services that may also leverage our expertise in personalization.” Such an offering will appear next year, he said, adding that Yahoo! would also consider acquisitions to beef up its paid offerings.
Such efforts are chiefly aimed at turning the tide of slipping revenues. Yahoo!’s third quarter revenues were down nine percent from last quarter, while pro forma net income dropped by about $300,000. A year ago, the company posted a $81.1 million in profit, or $0.13 per share, on $295.5 million in revenue.
On a net basis, the company wrote down some $17.9 million in investment losses, resulting in a $24.1 million loss, or $0.04 per share. Last year, the firm saw a profit of $47.7 million, or $0.08 per share.
As expected, revenue from Yahoo!’s advertising and e-commerce business dropped 11 percent from last quarter, but the company’s premium and business services operations helped to buoy the company’s overall performance with a three percent quarterly increase. (Yahoo! also estimated that the Sept. 11 terrorist attacks cost the firm about $2 million to $3 million in revenue.)
Still, despite the continuing woes afflicting Yahoo!’s advertising business — and reiterations that advertising could continue to decline as a percentage of the company’s overall revenue model — Semel said he believed in advertising’s long-term prospects.
“Advertising is expected to become a smaller percentage of a larger total over the next few years,” he said. “Nevertheless, it will remain a core and very important part of our business overall. No other medium can build brands, create customer relationships, and generate transactions the way the Internet can.”
“We’re creating a diversified business that balances our long-term belief in advertising on the Internet, and allows us to realize our vast … member base,” he added. “We have a global franchise that simply can’t be replicated.”
Still, for the near future, Yahoo! predicted revenues from $160 million and $180 million. During fourth quarter, the firm expects between a $5 million pro forma loss, to a $10 million pro forma profit — approximately breakeven to $0.01, on a per-share basis.
For the full year, Yahoo! said pro forma earnings should be between $10 million to $25 million, or $0.04 to $0.06 per share.
