Yahoo: Online Advertising Has Stabilized

Results from the Web portal gave further evidence that the online ad slump is ending, though executives stopped short of calling a recovery

Justin Sullivan/Getty Images

By Robert D. Hof

While no match for the resurgent third quarter reported by Google a few days earlier, Yahoo's (YHOO) results and its forecast for current-quarter sales beat analysts' expectations and gave further evidence that this year's swoon in Internet advertising may be ending.

Investors were pleased with the results, boosting Yahoo's shares almost 6% in extended trading after the market close. "It was a clean 'beat' quarter," says Sandeep Aggarwal, an analyst at financial services firm Collins Stewart (CLST.L). "You see signs of stabilization, which is very positive."

Yahoo, in the midst of a sweeping reorganization and rebranding campaign under CEO Carol Bartz since she joined in January, emphasized that the online advertising market is stabilizing. But still-declining revenue signaled that a full-blown recovery has yet to materialize. "Ad spending is starting to free up, and we are a great value proposition for advertisers," Yahoo Chief Financial Officer Tim Morse said on a conference call discussing the results. Bartz did not participate in the call because she had a minor illness. However, she said in a statement that Yahoo had a "solid third quarter that signals our major businesses have stabilized."

Profit from Alibaba Sale

In the third quarter, Yahoo earned $186.1 million in net profit, or 13¢ a share. That's up from 4¢ a year ago. Gross revenue of $1.58 billion was down 12% from a year ago. Net revenue after commissions to advertising partners, a more closely watched metric, was $1.13 billion.

About 5¢ of the profit came from the sale of Yahoo's stake in China's Alibaba, but remaining results were still ahead of forecasts. The company was expected to earn 7¢ a share on gross revenues of $1.52 billion, or $1.12 billion after payments to advertising partners.

In particular, Yahoo saw relative strength in selling display ads on its own sites, such as its home page. Revenue from those so-called guaranteed ads, whose placement is planned in advance, grew at a mid-single-digit percentage rate. That was much better than "non-guaranteed" ads, which run on pages with less valuable audiences, such as e-mail pages. Those ads declined, partly thanks to a recent Yahoo drive to rid itself of lower-quality ads for weight loss and other schemes.

Losing Ground to Google

Although display ad revenues overall grew 2% from the second quarter, the second straight quarter of sequential growth, they were still down 8% from a year earlier. Moreover, Yahoo's search business fared much worse, with search revenue falling 19% from a year earlier. That means Yahoo continues to lose ground to Google (GOOG), which saw growth accelerating in the third quarter.

Yahoo said it expects gross revenues of $1.6 billion to $1.7 billion in the fourth quarter. Operating income before depreciation, amortization, and stock-option costs is expected to be between $400 million and $450 million. Both of those are somewhat higher than Wall Street forecasts.

Business Exchange

Track and share business topics across the Web.