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Yahoo lowers 2001 earnings, sales targets

Yahoo! (Nasdaq: YHOO) met earnings expectations, but fourth quarter sales fell short of estimates and the company cut its outlook for 2001.

The portal posted a fourth-quarter profit of $80.2 million, or 13 cents a share, on sales of $310.8 million after the bell Wednesday. First Call Corp. consensus pegged Yahoo for a profit of 13 cents a share on sales of $315.1 million.

But the earnings were almost an afterthought because Wall Street was awaiting the company's outlook. Yahoo officials told investors to expect sales of only $1.2 billion to $1.3 billion in fiscal 2001, below previous estimates of $1.42 billion.

It's now expecting a profit of between 33 cents to 43 cents a share in the fiscal year, well below the First Call estimate of 57 cents a share. The first quarter looks to be the worst of the year. Company officials said Yahoo expects to post a profit of between 4 cents to 7 cents a share in its first quarter, dramatically lower than the current consensus estimate of 13 cents a share

On a conference call with analysts, CEO Tim Koogle said the company was hurt by a slowing economy and advertising market. Koogle said the company's guidance was conservative, and that he expected a rebound in the second half.

Investors didn't take the news well. Yahoo shares added 38 cents to $30.50 ahead of the earnings report before falling more than 20 percent to $24 in after-hours trading.


Despite the gloomy outlook, analysts questioned Yahoo's outlook for the first quarter and asked whether officials were laying out a worst case scenario just to beat expectations in upcoming quarters. "We are trying to be prudent managers," said Koogle. "We are trying to gauge things just like you. We are trying to lay out a plan that's very prudent."

Morgan Stanley analyst Mary Meeker argued that Yahoo was being too conservative with its guidance. She said the environment was less competitive, dot-com advertising has declined as a percentage of revenue and ad rates are holding in many regards. In November, Meeker suggested there was a 30 percent chance Yahoo would miss analysts’ profit targets this quarter.

Koogle didn't answer Meeker's question directly, but noted that the economy and capital constraints for start-ups are short-term problems. "We see the market reaccelerating in the second half," said Koogle. "We're more conservative than third parties. If growth is higher we should benefit."

On the advertising front, CFO Susan Decker said pure-play dot-com customers accounted for roughly 33 percent of sales in the fourth quarter, down from 40 percent in the third quarter. Decker said dot-com spending decelerated faster than the company expected. Officials said ad rates held, but the company did see pricing pressure on the low end.

Koogle said the company will continue to invest in new businesses, while balancing costs. It will also continue to expand into the corporate market. Koogle mentioned "subscription based premium services," but didn't give projections on potential revenue gains.

Behind the numbers

Yahoo did have one zinger in the earnings report -- a one-time write-off for money-losing investments. CFO Susan Decker attributed the loss to shares exchanged with Net2Phone (Nasdaq: NTOP) in their partnership.

Yahoo posted a loss of $97.8 million, or 17 cents a share, including one-time items because of the $138.5 million non-cash investment income loss.

Other than the non-cash loss, Yahoo was in line with expectations on many fronts. For the year, it raked in $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 the fiscal 1999 when it posted a profit of $138 million, or 23 cents a share, on sales of $591.8 million.

Yahoo said it averaged more than 900 million page view 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 and more than 60 million registered users logged on in December, up from 36 million last year.

Yahoo shares peaked at $225.63 in March before falling to a low of $25.06 in December.

Eighteen of the 32 analysts following the stock maintain either a “buy” or “strong buy” recommendation.