Yahoo's Q3 EPS stay flat, revenue grows

Portal saw strong sales of both brand ads, such as banner ads, and paid search ads

Yahoo Inc. increased revenue in its third quarter, ended Sept. 30, 2005, and its earnings per share stayed flat, the company said in a statement on Tuesday.

Revenue came in at $1.33 billion, up 47 percent from last year's third quarter. Excluding the money that Yahoo pays to third-party affiliates of its online ad network, revenue grew 42 percent to $932 million, exceeding the consensus estimate of $918 million from analysts polled by Thomson First Call. These third-party payments are commonly referred to as traffic acquisition costs (TACs).

The Sunnyvale, California, company attained net income of $253.8 million, or $0.17 per share, up slightly from $253.3 million, or $0.17 per share, for the same period in 2004. Including a net impact related to the sales of investments, net income was $238 million, or $0.16 per share, exceeding by $0.02 the Thomson First Call consensus estimate.

Yahoo, a Web portal that provides a wide variety of content and services to consumers and marketing programs to advertisers, experienced strong sales of both brand ads, such as banner ads, and paid search ads, the type that appear along with search engine results, executives said during a conference call to discuss the results. In fact, more advertisers are buying both types of ads, they said.

"What advertisers are finding, and what our research demonstrates, is that the more they utilize both forms of advertising on the Yahoo network, the better they do with each," said Terry Semel, Yahoo's chairman and chief executive officer.

By business area, revenue broke down into $1.16 billion from marketing services, which includes revenue from ads, Hotjobs and listings, and $170 million from fees, the company said. Geographically, U.S. revenue was $923 million, while international revenue was $407 million.

Opportunities abound for Yahoo to continue increasing its revenue, both in advertising and fees, over the long term, Semel said. "We're very proud of what we have accomplished so far but fully embrace the belief that we're still at the beginning of significant long-term opportunities," Semel said.

Semel declined to answer whether Yahoo is considering buying a stake in America Online Inc., as reported last week by various media outlets based on information provided by anonymous sources.

Yahoo ended the quarter with 411 million unique users, up 26 percent. Of the 411 million, 191 million were active registered users, up 22 percent. Active registered users are those who have signed up for at least one Yahoo service, such as e-mail, and who visit the Yahoo network at least once per month. Among the active registered users, 11.4 million were fee-paying users, up 50 percent.

Yahoo had 9,660 employees at the end of the quarter, up 38 percent.

Revenue per average unique user per month, excluding TAC, rose 13 percent to $0.79.

Yahoo raised its full-year forecast for revenue excluding TAC from a range of between $3.60 billion and $3.70 billion, to a range of between $3.66 billion and $3.71 billion. In the fourth quarter, Yahoo expects revenue excluding TAC to be in the range of $1.03 billion and $1.08 billion.

Copyright © 2005 IDG Communications, Inc.

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