Yahoo earnings on track

After two consecutive quarters of profitability, the Web portal is expected to continue its upward trend when it reports financial results Wednesday.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
3 min read
After two consecutive quarters of profitability, Yahoo is expected to continue its upward trend when it reports financial results Wednesday, according to Wall Street analysts.

If Yahoo meets forecasts for its fourth quarter and full-year 2002, it will signal another step toward recovery for a business that was crippled by the dot-com bust. The company has been trying to diversify its revenue and stabilize its online advertising business after watching its revenue plummet in 2001.

"It appears bit by bit that Yahoo is pulling everything together," said Jordan Rohan, an analyst at SoundView Technology Group.

Wall Street expects Yahoo to report fourth-quarter earnings of 6 cents a share and revenue of $278.6 million, according to First Call's consensus of analysts. The Web portal has said publicly it expects fourth-quarter revenue to reach $263 million to $288 million and earnings before interest, taxes, depreciation and amortization (EBITDA) to be between $69 million and $79 million.

The company said in October that it expects 2002 revenue to be between $930 million and $955 million and EBITDA to come in between $190 million and $200 million. That compares with 2001 revenue of $717.4 million and $43.6 million in EBITDA.

Yahoo is also expected to highlight elements of its turnaround plan outlined by CEO Terry Semel, who took the helm in 2001. Semel last week told investors the company had surpassed its goal for 2 million paid customers by the end of the year, largely due to growth in premium services such as personals, enhanced e-mail and classifieds.

The company acquired search technology provider Inktomi in December for $235 million in cash, a move interpreted by analysts as a way to soften its reliance on Google for search results.

Search: Yahoo's bedrock
Yahoo has found a way to make money off search results, making Web search a priority. The company's partnership with Overture Services has generated about $25 million to $30 million a quarter of hard cash for Yahoo, according to analyst estimates. Analysts consider Overture as a primary reason for Yahoo's growing financial projections because Overture pays Yahoo a fee every time its commercial links are clicked on the site.

Although Overture has helped Yahoo financially, there are still questions about the health of Yahoo's core online advertising business. The Web portal continues to rely heavily on selling advertising spots on its pages, and analysts have expressed concern in the past about whether the success with Overture has masked weakness in its core business.

During Yahoo's earnings announcement, analysts also will be listening for updates on its co-branded partnership with SBC Communications to provide digital subscriber line (DSL) service. The companies launched their service in September but have not released figures about whether consumers are signing up.

Yahoo and its primary competitors America Online and Microsoft are pursuing distribution deals with broadband providers, namely cable and telecom companies. Yahoo's Semel told investors last month that it expects to strike more deals, but the company has not formed any broadband partnerships since its agreement with SBC in November 2001.

"We've been waiting for them to do that for a while now," Youssef Squali, an analyst at First Albany, said in regards to Yahoo's broadband agreements. "Whatever relationships they sign are likely to be weaker than what they have with SBC, where it won't be exclusive."

Squali expects the SBC deal to contribute $5 million to $6 million to Yahoo's fourth quarter.