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January 18, 2006

Yahoo tanks over Internet ads

Posted by David Hunter at 9:20 AM ET.

Actually Yahoo’s earnings report wasn’t that bad, it’s just that more was expected:

Yahoo Inc. said yesterday that its fourth-quarter profit nearly doubled and revenue was up almost 40 percent, but Wall Street viewed the earnings report as disappointing and sent the Web portal’s stock tumbling by more than 13 percent in after-hours trading.


It marked the second consecutive quarter in which Yahoo reported earnings growth that investors interpreted as a sign that the company isn’t capitalizing on the online advertising boom as well as its rival, online search engine leader Google Inc.

“Yahoo has a good story going; it’s just not as good as Google’s,” said Internet industry analyst Safa Rashtchy of Piper Jaffray. “We would expect to see faster growth in a growth market that seems to be on fire like this one.”

And even Yahoo’s CEO agrees:

“Frankly, Google has done a better job than us,” Yahoo Chairman Terry Semel acknowledged during a Tuesday interview.

“It’s like we built our house first and someone came along and built an even better house,” Semel said.

A growing number of people also are relying on Google to process search requests, another factor depriving Yahoo of an opportunity to make more money. Through November, Google held a 39.8 percent of the U.S. search market, up from 34.6 percent at the same juncture in 2004, according to comScore Media Metrix. Meanwhile, Yahoo’s share has dropped to 29.5 percent, down from 32 percent in November 2004.

Based on Tuesday’s results, Rashtchy suspects Yahoo may have lost even more market share during December. “Something seems amiss,” he said.

Drumming up more advertising will become even more important later this year when Yahoo will lose one of its biggest partners, Microsoft Corp.’s, which plans to launch its own marketing network this summer.

Yahoo said Tuesday that it expects to lose about $120 million in advertising revenue generated by its partners this year. Besides the Microsoft setback, the erosion also reflects an expectation that Yahoo will have to share more revenue with its other remaining partners.

David Utter at WebProNews points to some advice from GotAds? concerning Semel’s further statement that they would be introducing improved ad algorithms later this year that would not impact the bottom line until 2007:

Maybe if Yahoo execs spent less time listening to Hollywood producers pitch online reality shows, and more time kicking the underachievers at Overture in the pants … So Overture is targeting 2007 to get its ad system up-to-par with Google! What have they been doing for the last 18 months!?

Yahoo could profitably spend less time and money on dubious “Web 2.0″ ventures too, but I digress. Finally, on the time honored Wall Street principle that misery deserves company, other Internet companies, including Google, got punished too:

Other Internet stocks fell after Yahoo reported earnings, with Google Inc. down 3.3 percent, eBay Inc. dropping 4.6 percent, Inc. off 3 percent and Inc. of China losing 3 percent.

Filed under Advertising, Coopetition, General Business, Google, MSN, MSN Search, Technologies, Web 2.0, Yahoo, adCenter

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One Response to “Yahoo tanks over Internet ads”

  1. Microsoft News Tracker » Intel earnings disappoint too Says:

    [...] It’s not just Yahoo that’s causing angst on Wall Street. Alexei Oreskovic at The Four months of strength in shares of Intel looked likely to end Wednesday as Wall Street threw up its hands over the company’s quarterly earnings report. [...]

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