Yahoo profit down on slowed display ad growth

Second-quarter revenue meets adjusted expectations in company's first financial results with Jerry Yang as CEO.
Written by Elinor Mills, Contributor
Yahoo on Tuesday posted second-quarter net profit that was down from a year ago as growth in its historically strong display advertising business slowed, and moves to better compete with Google on search advertising have yet to pan out.

On a conference call after the results were released, Yahoo executives said revenue for the rest of the year would be lower than previously anticipated because of continued lower-than-expected display ad growth and larger declines in search affiliate revenue than expected. Yahoo stock dropped more than 3 percent in after-hours trade.

Net earnings for the quarter ended June 30 were $161 million, or 11 cents a share, down nearly 2 percent from $164 million, or 11 cents a share, a year ago. It was the sixth consecutive net profit drop for the Internet search and media company.

Yahoo revenue rose 11 percent to $1.24 billion from $1.12 billion a year ago, excluding traffic acquisition costs, which are commissions paid to content partners, the company reported.

The results matched adjusted forecasts from analysts polled by Thomson Financial. Yahoo had warned last month that its revenue would come in at the lower half of its previous guidance of $1.2 billion to $1.3 billion.

Yahoo for the first time broke out the revenue it gets from ads on its owned and operated sites versus those on partner sites, but said it would no longer provide the revenue from its top 200 advertisers. Sales from ads the company placed on affiliate sites fell 5 percent, while ad sales on its own sites rose 18 percent from a year ago.

"I am focused on doing everything we need to do to strengthen our business, capture long-term growth opportunities and create increased value for our shareholders," co-founder and Chief Executive Jerry Yang said in a statement.

Yang took the reins from Terry Semel last month. Semel remains on as nonexecutive chairman of the board. Sue Decker, former chief financial officer and head of the company's advertising business, was named president.

At the time of the announcement, Decker said that while the company's affiliate search business was running more slowly than expected and growth of its display ad business had slowed, executives were pleased with early financial returns for the new paid search-marketing platform, Panama.

The management shakeup came nearly a week after a somewhat contentious shareholder meeting in which stockholders criticized Semel's pay in light of the company's lackluster stock price and complained that the company had failed to mount any serious challenge to Google on search and search advertising.

Yahoo lost its lead in the search market to the younger Google in recent years and watched Google turn search advertising into a cash cow, reaping $10.6 billion in revenue last year. Yahoo has a 25.1 percent share of the search market share compared with Google's 49.5 percent, according to ComScore.

Yahoo's lowered guidance was for revenue, excluding payments to content partners, of $1.17 billion to $1.31 billion for the third quarter and $4.89 billion to $5.19 billion for the full year, an 11 percent rise from a year ago at the midpoint of the range.

Yahoo's stock has dropped about 13 percent from a year ago, while Google's has jumped about 37 percent.

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