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Yahoo reports profit on higher revenue

The Web portal announces a net profit for its second consecutive quarter, helped in part by a 50 percent increase in net revenue.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
4 min read
Web portal Yahoo on Wednesday reported a net profit for its second consecutive quarter, helped in part by a 50 percent increase in net revenue.

The company said net profit for the third quarter, ended Sept. 30, reached $28.9 million, or 5 cents a share, on sales of $248 million. That's compared with a net loss of $24.1 million and revenue of $166 million for the same period in 2001.

Wall Street analysts expected Yahoo to report a profit of 4 cents a share, excluding charges, on $239.16 million in revenue, according to a survey by First Call.

Earnings before interest, taxes, depreciation and amortization (EBITDA) reached $60.2 million for the quarter, while free cash flow reached $57.3 million. That's an increase from last year's $6.8 million in EBITDA and free cash flow loss of $6.3 million.

Yahoo attributed the jump in EBITDA to the quarter's boost in overall revenue and a slowdown in costs.

"Despite a challenging external environment, it is clear Yahoo is benefiting from the strategy and plan we laid down nearly a year ago and that our efforts to position the company for sustainable, profitable growth are paying off," Yahoo CEO Terry Semel said in a statement.

Here are the financials from Yahoo's three lines of business:

• Marketing services: the most closely watched number as it encompasses Yahoo's core online advertising business. Revenue rose 22 percent to $147.4 million. Yahoo attributed the increase to more revenue from small to mid-sized companies through sponsored search services. However, barter revenue decreased.

• Fees and listings: comprises Yahoo's efforts to charge fees for certain "premium" services. Revenue jumped 124 percent from last year to $83.1 million. Excluding its HotJobs acquisition, revenue rose 66 percent from the growth of premium services such as personals and its DSL (digital subscriber line) product with SBC Communications. Yahoo added 500,000 paid customers from last quarter to a total of 1.5 million.

• Transactions: Yahoo's e-commerce business. Revenue grew 118 percent to $18.3 million due to more transactions and changes in pricing for the company's e-commerce site.

Looking forward
Yahoo also raised its revenue and EBITDA projections for 2002. The company now expects revenue between $930 million and $955 million and EBITDA between $190 million and $200 million for 2002. Last quarter, the company projected revenue of $900 million to $940 million, and EBITDA between $140 million to $165 million.

Yahoo also said that the expected $20 million to $30 million revenue from its DSL product with SBC will not be booked this year. The company blamed the delay on its decision to wait on migrating SBC's DSL subscribers onto the SBC Yahoo service. Regardless, revenue will come in higher this year.

Meanwhile, capital expenditures will range between $45 million and $50 million, and depreciation expenses will be around $90 million for the year.

Yahoo said it extended into the long term a deal to carry Google's search listings as a backup for its own search directory, but did not provide a time frame.

The company also issued guidance for the coming 2003 financial year. Yahoo expects revenue between $1.07 billion and $1.18 billion. EBITDA estimates for the year are between $250 million and $300 million.

"These are strong numbers throughout," said Youssef Squali, an equity analyst with First Albany. "I'm very happy with it."

Online ad comeback?
Wall Street analysts agreed that it was an excellent quarter for Yahoo, but concerns still persist about the company's core online advertising business. Excluding revenue from its deal with Overture, Yahoo's online advertising and marketing business grew from the second quarter--a substantial feat, considering most media companies have seen advertising dollars dry up.

Still, Yahoo's advertising compared with last year showed a single-digit percentage decline from 2001 when Overture is factored out.

"If a company shows quarter-over-quarter growth in advertising in the third quarter, it suggests a very robust business," said Jordan Rohan, an equity analyst at SoundView Technology Group. "It's difficult to do that."

Rohan estimated that Overture contributed about $25 million to Yahoo's revenue line. That figure alone helped Yahoo show considerable overall growth in marketing services from 2001.

Yahoo's Semel said during a conference call that he sees "growth in the total marketplace in terms of advertising into next year."

But Wall Street is taking a more conservative approach, instead viewing Yahoo's growth as the company making gains in a recessed advertising market.

"It's still not entirely clear what's happening when you peel back the onion because the online ad market continues to be lackluster," said Derek Brown, an equity analyst at WR Hambrecht. "But within that market, Yahoo is gaining share."