Yahoo profit falls 18% after project spending
Posted on Wednesday, July 23, 2008
Yahoo Inc., the Internet company that added activist investor Carl Icahn to its board Monday, posted an 18 percent drop in second-quarter profit on Tuesday after spending more on developing new projects.
Net income fell to $ 131. 2 million, or 9 cents a share, the company reported. Excluding fees passed on to partner sites, sales rose 8. 2 percent to $ 1. 35 billion, compared with the $ 1. 38 billion average of estimates compiled by Bloomberg.
Development costs advanced 12 percent as Yahoo spent more on improving search-engine technology. While an economic slowdown hurt some customers’ advertising budgets, partnerships with clients such as Wal-Mart Stores Inc. helped Yahoo meet its own targets, Chief Financial Officer Blake Jorgensen said.
“It is performing slightly better than the bears suspected,” LR Burtschy & Co. equity research director Paul Meeks told Bloomberg Radio. Though the performance was mixed, “the stock might have a little bit of a relief rally.” Yahoo, based in Sunnyvale, Ca- lif., fell 27 cents to close at $ 21. 40 on the Nasdaq Stock Market. The stock has dropped 18 percent since June 12, when Microsoft said it wouldn’t pursue a full takeover of the company.
To the relief of investors, Yahoo didn’t dramatically lower its revenue outlook for the remainder of the year despite the dreary economic conditions in the United States and part of Europe.
Management expects 2008 revenue to range from $ 7. 35 billion to $ 7. 85 billion. That was not dramatically different from Yahoo’s forecast of $ 7. 2 billion to $ 8 billion three months ago.
Last year, second-quarter profit amounted to $ 160. 6 million, or 11 cents, the company said Tuesday in a statement. Excluding costs such as stock-based compensation, last quarter’s earnings amounted to 10 cents, trailing the 16-cent average estimate.
Gross revenue climbed 5. 9 percent to $ 1. 8 billion. For the third quarter, Yahoo projected gross revenue of $ 1. 78 billion to $ 1. 98 billion, compared with the $ 1. 94 billion estimate of Canaccord Adams Inc. analyst Colin Gillis in New York.
The results may make it harder for Chief Executive Officer Jerry Yang to deliver on his vow to boost sales 72 percent by 2010. Yang has disputed Icahn’s assertion that Yahoo needs Microsoft to compete with Google Inc. in Internet searches and online advertising.
Yang, 39, persuaded Icahn to drop his proxy fight at the Aug. 1 shareholder vote in exchange for three seats on an 11-member board. The 72-year-old investor controls almost 70 million Yahoo shares, or about a 5 percent stake. Yahoo said Tuesday that it spent about $ 22 million on evaluating Microsoft’s proposals and the proxy contest.
Before the agreement, Icahn had sought to replace Yang, saying he didn’t have the operational expertise to run the company. The investor helped hasten the departures of executives at companies such as Blockbuster Inc. and Motorola Inc., whose CEOs stepped down after Icahn’s lobbying efforts.
With Icahn as a director, Yang may face more internal pressure to reignite the company’s growth or sell to Microsoft. Yahoo, which posted eight straight quarters of profit declines before the Microsoft bid, had argued that the Redmond, Wash.-based software company’s offer didn’t reflect its value and growth prospects.
Defending Yahoo’s independence, Yang forecast in March that sales would climb to $ 8. 8 billion by 2010 from $ 5. 11 billion last year. Analysts on average project sales of $ 7. 3 billion for that period, according to estimates compiled by Bloomberg.
Microsoft offered $ 44. 6 billion, or $ 31 a share, for Yahoo six months ago. The software maker sweetened the bid to $ 33 before walking away from talks as Yang sought more money. Since turning down those offers, Yahoo has spurned multiple proposals from Microsoft to buy its search unit.
Buying Yahoo would help Microsoft shrink the gap with Google in Internet searches and advertising, giving the software maker almost a third of U. S. queries. Last week, the company reported that the loss at its online unit swelled to $ 1. 2 billion in the year ended June 30.
At the same time, Google reported a second-quarter profit that missed analysts’ estimates as legal and research costs expanded. Yahoo fields about 20 percent of U. S. searches, one-third as many as Google. Global online ad spending probably will climb to $ 65. 2 billion this year, with more than a third of that coming from searches, according to Framingham, Mass.-based researcher IDC.
Sales of banner ads and socalled display promotions on Web pages will rise 12 percent in the U. S. this year, Magna Global said this month. The New York-based researcher lowered its forecast from a 17 percent gain, as soaring fuel and food prices curbed spending. Prices for gas and food helped drive U. S. consumer prices up 5 percent in June, the most since 1991. Information in this article was contributed by Crayton Harrison, Amy Thomson and Sal Giangrasso of Bloomberg News and Michael Liedtke of The Associated Press.
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