Yahoo meets estimates; revenue soars

The Web portal posts a net profit of $75 million, marking the first quarter in which it included results from its $1.6 billion acquisition of Overture.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
4 min read
Yahoo on Wednesday reported fourth-quarter earnings that met Wall Street expectations, marking the first quarter that included results from its $1.6 billion acquisition of Overture Services.

The Web portal reported a fourth-quarter net profit of $75 million, or 11 cents per diluted share, up from $46.2 million for the same period last year. That met Wall Street analyst expectations of 11 cents a share, according to a survey Thomson First Call conducted.

Yahoo said its revenue under generally accepted accounting principles reached $663.9 million this quarter, compared with $285.8 million for the same period in 2002.

Yahoo on top
Research shows that the Web portal giant had more unique visitors to its U.S. sites in December 2003 than any other online property.
Total unique December visitors20022003Change (percent)
Time Warner110,828110,4710
MSN and Microsoft107,948110,0212
eBay 53,92969,16928
Total Internet users144,868152,1095
Source: ComScore Media Metrix
However, Yahoo executives are underscoring revenue without traffic acquisition costs (TAC), which it considers a more accurate reflection of its business. In this case, Yahoo's revenue, minus its TAC, reached $511.3 million, exceeding First Call consensus estimates of $495.5 million.

TAC corresponds to a cut from revenue that Yahoo pays distributors every time someone clicks on an Overture link. Before Yahoo acquired Overture for $1.6 billion, Overture paid about 65 percent of its revenue to distribution partners such as Yahoo and Microsoft's MSN, according to analysts. The quarterly increase of Overture's TAC fueled concerns that its profit margins would continue to shrink.

Yahoo's operating income before depreciation and amortization--formerly known as earnings before interest, taxes, depreciation and amortization--totaled $157.5 million for the fourth quarter, compared with $84.6 million for the same period of 2002. Cash flow for the fourth quarter hit $101.9 million, up from $79.4 million for the same period in 2002.

"Yahoo's fourth-quarter performance completes a year of phenomenal growth for our company and represents the most successful quarter in the history of Yahoo," company CEO Terry Semel said in a statement. "As we made across-the-board improvements in our business, we were rewarded with deeper and more profitable relationships with our customers."

For the year, Yahoo's revenue reached $1.6 billion, compared with $953.1 million in 2002. Revenue in 2003 was the highest ever, surpassing the $1.1 billion reported during the boom year of 2000. Excluding TAC, 2003 revenue hit $1.5 billion.

Operating income before depreciation and amortization in 2003 totaled $455.4 million, up from $197.6 million in 2002. Cash flow for the year was $428.1 million, compared with $302.4 million for 2002.

The revenue breakdown for Yahoo's three areas of business mostly showed strong gains--and sluggishness in a couple of sectors.

• Marketing services: Revenue skyrocketed 178 percent to $545.5 million this quarter from last year's $196.4 million. For 2003, marketing services reached $1.2 billion, or an 84 percent jump from $651.6 million in 2002. Most of the gains came from Yahoo's addition of Overture's results as well as stronger search and marketplace revenue.

The company did not break out the percentage of revenue derived from paid search as in previous quarters, nor did it break out revenue from branded advertising. Executives said marketing services revenue including Overture grew more than 40 percent during 2003 and 48 percent during the fourth quarter. Executives said online advertising is expected to grow 25 percent to 30 percent this year, less than last year but more than the 20 percent to 25 percent growth for the industry.

Susan Decker, Yahoo's chief financial officer, said the lesser growth rate stems from the maturing business for paid search.

"The sponsored search piece was an earlier stage in development" in 2003, Decker said in a phone interview. "Most industry forecasters are not assuming the same growth rate."

• Fees: The unit that comprises Yahoo's subscription businesses reported $85.2 million in revenue, marking a 37 percent increase compared with $62 million in the fourth quarter of 2002. For the year, fees totaled $298.2 million, up 43 percent from $207.9 million in 2002.

Yahoo cited gains from its DSL (digital subscriber line) partnership with SBC Communications as the main driver of growth. SBC last week said it added 378,000 new DSL subscribers for the quarter ending Dec. 31. All of those customers are counted as Yahoo subscribers as well. Other areas, such as online personals, premium e-mail and fantasy sports, also saw strong gains.

• Listings: Revenue in this area, which largely comes from online employment site HotJobs, reached $33.2 million in the fourth quarter, essentially flat from the third quarter's $32.4 million. HotJobs has suffered from a poor recruiting market.