Yahoo tops revenue, earnings expectations in Q4

US$1.702b revenue represents a 13 percent increase compared with Q4 2005

Yahoo Inc. exceeded Wall Street's revenue and earnings expectations in its fourth quarter, as the embattled Web portal begins 2007 with high hopes for its revamped advertising platform and recent reorganization.

Yahoo generated revenue of US$1.702 billion for the quarter, ended Dec. 31, 2006, a 13 percent increase over the same quarter in 2005, the company said Tuesday.

Subtracting the commissions it pays to its advertising partners, Yahoo had revenue of US$1.228 billion, up 15 percent and topping the consensus expectation of US$1.219 billion from analysts polled by Thomson Financial.

Net income came in at US$269 million, or US$0.19 per share, including US$56 million of stock-based compensation expense, recorded under the fair value method. This compares with net income of US$683 million, or US$0.46 per share, including US$11 million of stock-based compensation expense, recorded under the intrinsic value method, for the same period of 2005.

On a pro forma basis, which excludes certain items, net income was US$229 million, or US$0.16 per share, exceeding analysts' consensus expectation of US$0.13 per share.

Yahoo's management has been criticized internally and externally for a perceived failure to capitalize on the torrid growth of search engine advertising, upon which rival Google has built its empire.

The interface of the new Project Panama search advertising system will be available to all U.S. customers by the end of this quarter, continuing a rollout that began in the fourth quarter, Yahoo Chief Executive Officer Terry Semel said during a conference call. Its other major element, a new ad-ranking model, will go live in the U.S. in early February, he said.

"We are resolute about improving search monetization, and we're making exciting progress," Semel said.

Yahoo expects to begin seeing significant revenue benefits from Project Panama in this year's second quarter, when it plans to begin rolling it out internationally, starting with Japan, he said.

In November, a scathing internal memo calling for a major reorganization of Yahoo became public. Written by a Yahoo senior vice president, the memo said the company has to stop spreading a thin layer of "peanut butter" across multiple opportunities and instead focus on key areas, improve upper-management accountability and reorganize.

In December, Semel announced that Yahoo would be reorganized into three new units and that Chief Operating Officer Dan Rosensweig would leave the company. The reorganization is expected to help the company focus its business operations and improve its financial performance. Yahoo missed Wall Street's revenue expectations in the second and third quarters of 2006.

On Tuesday, Semel said he was pleased with the fourth-quarter results, saying the company continues to focus on three areas it has identified as key to its growth: search advertising, mobile and video.

For the full year, Yahoo had revenue of US$6.426 billion, up 22 percent compared with 2005. Net income was US$751 million, or US$0.52 per share, including US$280 million of stock-based compensation expense, recorded under the fair value method. This compares with net income of US$1.896 billion, or US$1.28 per share, including US$32 million of stock-based compensation expense, recorded under the intrinsic value method, for 2005.

Yahoo expects revenue, minus the partner commissions, to be in the range of US$1.120 billion to US$1.230 billion this quarter, and in the range of US$4.950 billion to US$5.450 billion for 2007.

The company's stock (YHOO) closed at $26.96 on the Nasdaq exchange on Tuesday. Its 52-week high is US$35.48.

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