Glimmer of hope seen in Yahoo earnings

The Web portal is optimistic about meeting estimates, but analysts are still waiting for a sign of recovery in its advertising business.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
2 min read
The light at the end of Yahoo's tunnel may be glowing brighter.

The Web portal, which saw revenue plunge last year, is expected to report revenue of $217 million when it states its finances for the second quarter on Wednesday. That's well within management's guidance of $205 million to $225 million and a marked improvement compared with the $182.2 million reported for the same period last year.

The turnaround stems partly from the success of an aggressive diversification program that has led the company to sharpen its focus and enter new businesses such as classified job listings. But analysts said they are still waiting for signs of recovery in Yahoo's core display advertising business, which has suffered in the industrywide slump.

"The vast majority of revenues still come from advertising," said Paul Kim, an analyst at investment bank Kaufman Bros. "That's what will determine the success of the business."

In the past year, Yahoo has undergone a management and strategy overhaul to refocus the business and stem revenue declines brought on by slack advertising sales. Under the guidance of CEO Terry Semel, who joined Yahoo in May 2001, the company reorganized into six units and began eliminating under-performing areas while diverting resources to non-advertising businesses.

The company has ended many of its free services, imposing fees for some and closing others altogether. In the most recent moves on this front, the company this month shut down its Finance Vision business news program and Yahoo Radio, a streaming service created through its $5 billion purchase of Broadcast.com in 1999.

The company has also invested in new businesses and partnerships aimed at diversifying revenue, joining SBC Communications on an Internet access service, acquiring jobs listing site HotJobs.com, and selling advertising on its search pages in a deal with Overture Services.

E-commerce has been a bright spot, with online transaction sales increasing 28 percent in the first three months of 2002 compared with the previous quarter.

Despite these successes, advertising remains the company's bread and butter. Last quarter, Yahoo reported that advertising dropped 15 percent from the previous year and 11 percent from the previous quarter.

As a result, while analysts applaud Yahoo's diversification efforts, many remain cautiously optimistic about the company's prospects over the short haul.

"Although the overall advertising market has seemingly bottomed and embarked on a recovery, it is unclear when Internet advertising will recover," Frederick Moran, an analyst at brokerage firm Jeffries, wrote in a note to investors Tuesday. "As a result, an increase in traffic growth should not translate into improving results."