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Yahoo shares tumble on slashed expectations

The leading Web destination reports fourth-quarter per-share earnings of 13 cents but pares its revenue and profit forecasts for this year, sending the shares down 20 percent.

Leading Web portal Yahoo met analyst expectations for fourth-quarter earnings Wednesday but sharply reduced its expectations for 2001--an ominous report that depressed the shares of several ad-supported Web companies in after-hours trading.

Portal troubles
Yahoo! stock price from January 2000 to present.  
 Source: Prophet Finance
After the close of regular trading, Yahoo posted a fourth-quarter profit of $80.2 million, or 13 cents a share, on sales of $310.8 million.

The performance met the consensus profit estimate but missed most analysts' sales expectations. The company also lowered its guidance for fiscal 2001.

According to First Call, Yahoo was expected to earn 13 cents a share on sales of $315.1 million.

In addition, company executives told investors to expect sales of only $1.2 billion to $1.3 billion in fiscal 2001, below previous estimates of $1.42 billion. The portal giant now is expecting a profit of between 33 cents to 43 cents a share in the fiscal year, well below First Call's estimate of 57 cents a share.

In regular trading, Yahoo shares gained 38 cents to close at $30.50. In after-hours trading the shares slipped to below $25 after a brief trading halt.

Other Web advertising companies were caught in the downdraft. After closing at $12.44, DoubleClick shares slipped to $10.50; 24/7 Media slipped 6 cents to 78 cents; and Mediaplex dropped 13 cents to $1.

On a conference call with analysts, chief executive Tim Koogle said the company was hurt by a slowing economy and advertising market. He described the company's guidance for 2001 as conservative, adding that he expects a rebound in the second half.

In an interview with CNET News.com, Koogle reiterated his belief that the advertising slowdown is temporary and that the consolidation among dot-coms will only benefit the eventual winners in the long run.

"We believe strongly that this medium is hugely valuable to marketers and businesses worldwide," he said. "The short term effect is one of a pullback, including for some of our customers. (But) we strongly believe the Internet will win a larger share of overall advertising dollars, and spending will consolidate more among those companies that provide scale. We're one of those."

For the year, Yahoo earned $290.9 million, or 48 cents a share, on sales of $1.11 billion--in line with analysts? estimates.

The $1.11 billion in sales marks an 88 percent improvement from fiscal 1999 when the company posted a profit of $138 million, or 23 cents a share, on sales of $591.8 million.

Company executives said they expect to post a profit of between 4 cents to 7 cents a share in its first quarter--about half the current consensus estimate of 13 cents.

Despite the lackluster outlook and disappointing fourth-quarter sales, some analysts had expected worse from the world?s largest Internet portal.

On the bright side, Yahoo said it averaged more than 900 million page views a day in December, comfortably above the 865 million to 880 million expected by analysts. It recorded more than 180 million unique users in December, up from 120 million in the year-ago period.

While Wall Street was prepared for a letdown this quarter, most analysts held out hope for sales in the neighborhood of $315 million to $320 million.

Jefferies & Co. analyst Fred Moran predicted Yahoo would post sales of $313 million in the quarter. Wit SoundView analyst Jordan Rohan was looking for sales of $320 million.

In November, Morgan Stanley Dean Witter analyst Mary Meeker suggested there was a 30 percent chance Yahoo would miss analysts? profit targets this quarter.

Yahoo does not plan to shutter weak performing aspects of its business, Koogle said in the interview, but rather will look to expand its offerings.

The company aims to trim its reliance on ad revenues by 5 percent to 10 percent by selling "premium subscription services" and expanding on its business and enterprise offerings, such as Web hosting.

Koogle declined to discuss specific plans for premium services beyond those already announced. Nevertheless, he predicted substantial growth in non-advertising revenues as a percentage of overall sales.

"At the end of this year we should have increased these services as a percentage of overall revenues to 15-20 percent, represent a doubling of current (non-advertising) revenues," he said. "We have a big audience and the opportunity to build deeper offerings. We have the flexibility, the scale and the management to do this, but we're going to be prudent."