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Yahoo misses Wall Street estimates

Net income rises from a year ago but is below analyst targets, sending shares tumbling in after-hours trading.

Internet bellwether Yahoo posted on Tuesday net income for the fourth quarter that rose from a year ago but was below analyst expectations, sending shares down about 13 percent in after-hours trade.

Net income for the period ended Dec. 31 was $247 million, or 16 cents per share, compared with $187 million, or 13 cents a share, a year ago. The income was adjusted to exclude a one-time gain from Yahoo's purchase of a 40 percent stake in Chinese e-commerce site Alibaba.com.

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During Yahoo's earnings conference call, CEO Terry Semel says Yahoo has the largest user base of any Internet company, and that will make Yahoo's future ventures successful.
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Analysts polled by Thomson Financial had expected Yahoo to post fourth-quarter earnings per share of 17 cents.

The news sent Yahoo shares tumbling more than 13 percent in after-hours trading. After closing at $40.11 in regular trading, the shares slid to $34.96 after the earnings report was released.

Revenue was $1.5 billion, up 39 percent from $1.078 billion a year ago. Revenue excluding traffic acquisition costs, or fees shared with partners, was $1.068 billion, roughly in line with analyst expectations and up 36 percent from $785 million a year ago.

Yahoo met its internal guidance and gained market share against other portal rivals, including Google and MSN, said Dan Rosensweig, chief operating officer.

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During the conference call following Yahoo's earnings announcement, CFO Susan Decker discusses what the company expects for this year.
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"We are the largest Internet network in the world, with the largest number of users and the most-engaged users. We're seeing growth in all our product categories," he said in an interview with CNET News.com. "Nearly 40 percent of everybody who came onto the Internet last quarter touched Yahoo some how. We think we're in a terrific position."

Yahoo has 429 million unique users, more than 200 million active users and 12.6 million unique paid relationships with users who subscribe to online music and other services, Chief Executive Terry Semel said in a teleconference with analysts. "This year we are poised to surpass 15 million paying relationships," he said.

Marketing services revenue was $1.32 billion, up 39 percent from $943 million a year ago, while fees from premium services revenue rose 38 percent to $186 million from $135 million, Yahoo said.

For the full year, net income was $854 million, or 58 cents a share, compared with $525 million, or 36 cents a share, for 2004. Revenue was $5.3 billion, up 47 percent from $3.6 billion, while revenue excluding traffic acquisition costs was $3.7 billion, up 42 percent from $2.6 billion.

The company expects first-quarter revenue, excluding traffic acquisition costs, to fall in the range of $1.04 billion to $1.1 billion and 2006 revenue to be in the range of $4.6 billion to $4.85 billion, Chief Financial Officer Susan Decker said during the teleconference. Analysts on average were estimating that first-quarter revenue would be $1.09 billion for the first quarter and $4.77 billion for the full year.

In 2006, Yahoo expects to lose about $120 million in ad revenue from affiliates, mostly due to Microsoft's MSN planned move to its own ad network in June, Decker said. MSN's revenue contribution is expected to drop from $75 million to $25 million for the first half of 2006, she said.

Yahoo's headcount was up 30 percent from a year ago to 9,820, Decker said.

During the fourth quarter, Yahoo's estimated advertising revenue from image-based ads jumped 62 percent from a year ago. Overall traffic across its Web sites grew 9 percent to 103.5 million users, reaching about 68 percent of the Web's active users, according to research firm Nielsen/NetRatings.

Yahoo shares have risen about 8 percent in the past year and nearly 20 percent since its last earnings announcement.

Google reports its fourth-quarter results Jan. 31.