Online Advertising Rebound Nearly Triples Yahoo's Fourth-Quarter Profit

Yahoo nearly triples its fourth-quarter profit and boosts its financial outlook for this year.
SAN FRANCISCO (AP) _ Five years of stagnant online advertising ended in 2004, according to jubilant executives at Yahoo Inc., helping the Web giant nearly triple its fourth-quarter profit and boosting its financial outlook for this year.

The Sunnyvale, Calif.-based company, which operates the world's most popular Internet destination, said Tuesday it earned $373 million, or 25 cents per share, for the three months ended Dec. 31. Excluding profits from the sale of some investments, the company earned $187 million, or 13 cents per share, up 149 percent from $75 million or 5 cents per share in the same quarter of 2003.

The company soundly beat Wall Street estimates of 11 cents per share.

Revenue for the fourth quarter totaled $1.078 billion, a 62 percent increase from 2003.

Excluding so-called ``traffic acquisition costs,'' revenue was $785 million for the quarter. That's still 54 percent more than the final quarter of 2003 and substantially higher than analysts' expectation of $756.14 million.

``Traffic acquisition costs'' are revenues Yahoo shares with advertisers who reach the company's Web properties through search engines other than the company's own.

Yahoo earned $840 million, or 58 cents per share, in 2004. Excluding a windfall from selling stock in Google Inc. and other one-time profits, Yahoo earned $526 million, or 36 cents per share, compared to $238 million, or 18 cents per share in 2003.

Annual revenue was $3.575 billion, a 120 percent surge from 2003. After subtracting traffic acquisition costs, sales were $2.6 billion, a 77 percent increase from 2003.

Yahoo Chief Operating Officer Dan Rosensweig said many Fortune 500 companies questioned the logic of Internet advertising after the dot-com collapse of 2000. In Silicon Valley's late '90s halcyon days, marketers urged bricks-and-mortar companies to consider ``eyeballs,'' ``stickiness'' and other wacky metrics instead of conventional circulation or viewership rates.

But by 2003, Yahoo saw a steady stream of large advertisers _ including giant corporations in the financial services, automobile, travel and retail industries _ return to the medium. Many stayed through 2004, which Rosensweig called ``a seminal year.''

``It was the beginning of a tipping point,'' Rosensweig said. ``We are no longer asking the question of whether or not the market share of Internet advertising will increase _ the issue is how quickly.''

The 7,600-employee company ended the year with 345 million unique users, up 24 percent from the fourth quarter of 2003. It had 8.4 million customers who paid for ``premium'' services such as expanded e-mail storage, up 800,000 from the third quarter and up 3.5 million from the same time a year ago.

Despite warning investors of a post-holiday sequential downturn, Yahoo executives increased their year-over-year expectations for the first quarter and throughout 2005. The company expects revenue up to $805 million for the quarter and $3.565 billion for the year.

Derek Brown of Pacific Growth Equities said Yahoo's performance last quarter could be a precursor to a strong 2005 for all companies dependent on online advertising.

He emphasized that Yahoo was still a high-risk investment _ a young company in an emerging niche. But he said the world's largest companies now consider online advertising to be as important as television, newspaper and magazine advertising, which could minimize the boom and bust pattern of e-commerce companies in the last five years.

``We believe 2004-2005 will prove to be an inflection point for Yahoo and the online advertising industry in general that finally pushes Internet marketing into the mainstream and sets the stage for robust growth, expansion, and market share gains,'' Brown wrote in a research report Tuesday.

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