Update: Yahoo's revenue falls short in Q3

Yahoo Inc. failed to meet Wall Street's revenue expectation in the third quarter, during which the company saw weaker-than-expected online sales in some industry segments.

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Revenue for the quarter, which ended Sept. 30, came in at US$1.58 billion, up 19 percent from last year's third quarter, the company said Tuesday. Excluding the commissions Yahoo pays to Web sites that carry ads from its network, revenue totaled $1.12 billion, missing the consensus expectation of $1.14 billion from analysts polled by Thomson Financial.

Last month, Yahoo announced that its revenue, excluding commissions, would be in the lower range of its forecast because it didn't sell as many ads as expected to clients in the automotive and financial services industries. Yahoo expected revenue, excluding commissions, to be in the range of $1.11 billion to $1.22 billion.

Yahoo met analysts' earnings-per-share expectations of $0.11 on net income of $159 million. That is down from net income of $253.8 million, or $0.17 per share, in last year's third quarter.

In this year's second quarter, Yahoo also failed to match analysts' revenue expectation, and added insult to injury by delaying the roll out of its highly anticipated new advertising platform, called Project Panama, from the third quarter to the fourth quarter.

"I'm not satisfied with our current financial performance and we intend to improve it," Yahoo Chairman and Chief Executive Officer Terry Semel said during a conference call. "We're not exploiting our considerable strengths as well as we should be."

Yahoo's financial performance is often contrasted with the generally stellar one of its biggest rival Google Inc. Both companies generate most of their revenue from sales of online advertising and attract visitors to their Web sites by providing a variety of online services, like Internet search, Web mail, photo management and online video.

To do better, Yahoo will focus on several areas, like improving its search and graphical advertising businesses, as well as deepen its services in high-growth areas like social media, mobile and online video services, Semel said.

Key to improving Yahoo's search advertising business is Panama. On Tuesday, Yahoo began rolling out Panama's first piece -- a campaign management tool for advertisers -- to clients in the U.S., Semel said. The other major piece of Panama -- a marketplace design feature -- will be implemented in next year's first quarter in the U.S., he said. Afterward, Yahoo will make Panama available to clients outside of the U.S. Yahoo expects to see the initial benefits of Panama reflected in its 2007 second-quarter revenue, Chief Financial Officer Susan Decker said.

To boost its graphical ad business, Yahoo announced Tuesday that it has reached a definitive agreement to acquire AdInterax, which makes rich-media advertising tools. Yahoo intends to make those tools available to marketers at no charge as part of its graphical advertising services.

In another boost to its graphical ad efforts, Yahoo has acquired a 20 percent stake in Right Media Inc. and will make Yahoo ad inventory available on the Right Media Exchange, an auction marketplace for online ads, the company also announced on Tuesday.

Meanwhile, Yahoo plans to increase its efforts in the mobile market, because demand for mobile access to Internet services and content are increasing at a rapid pace, Semel said.

Likewise, Yahoo will continue fortifying its social media services, which already include photo sharing site Flickr, social bookmarking service del.icio.us and the question-and-answer search engine Yahoo Answers. Finally, Yahoo wants to make online video as ubiquitous on its Web sites as text is today, Semel said.

Looking ahead, Yahoo is reducing its full-year revenue forecast, subtracting commissions, to a range of between $4.47 billion and $4.59 billion. Previously, it expected revenue in the range between $4.6 billion and $4.85 billion. It expects fourth-quarter revenue, subtracting commissions, to be between $1.145 billion and $1.265 billion.