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Yahoo Profit Falls 2.3 Percent as Google, Facebook Take Sales
By Ari Levy
July 17 (Bloomberg) -- Yahoo! Inc., owner of the most- visited U.S. Web site, said second-quarter profit fell 2.3 percent as Google Inc. extended its lead in Internet search queries and new rivals took sales in display advertising.
Net income dropped to $160.6 million, or 11 cents a share, from $164.3 million, or 11 cents, a year earlier, the Sunnyvale, California-based company said today in a statement distributed by Business Wire. Sales, excluding revenue passed on to partner sites, rose 11 percent to $1.24 billion, matching analysts' estimates.
Yahoo's diminishing share of the search market has contributed to six straight quarters of declining profit and the slowest sales growth since 2001. The company last month brought in co-founder Jerry Yang as chief executive officer to help close the gap with Google and win back sales of banner ads lost to competitors such as Facebook Inc. and News Corp.'s MySpace.
Yahoo's market share ``has started to trend down over the past few years,'' said Steve Weinstein, an analyst at Pacific Crest Securities Inc. in Portland, Oregon, who rates Yahoo ``outperform.'' Facebook and MySpace are ``putting some overall pressure on Yahoo to keep pace.''
Analysts on average had estimated second-quarter sales of $1.24 billion, according to a Bloomberg survey. Yahoo said in June that revenue would be at the low to middle end of its forecast of $1.2 billion to $1.3 billion because of slowing sales of display ads.
Profit matched the average analyst estimate of 11 cents a share, according to Bloomberg.
Trailing Google
Shares of Yahoo rose 83 cents, or 3.1 percent, to $27.53 at 4 p.m. New York time in Nasdaq Stock Market trading. They have climbed 7.8 this year.
Yahoo's share of U.S. Internet queries dropped to 21.5 percent in May from 22.9 percent a year earlier, while Mountain View, California-based Google jumped to 56.3 percent from 49.1 percent, according to New York-based Nielsen//NetRatings.
Yahoo in February introduced Project Panama, an advertising program designed to make advertisers' Web links more relevant and more likely to be clicked. Sue Decker, who was promoted from chief financial officer to head of ad sales, said last month that Panama was boosting results.
Yahoo makes its money selling search-linked ads, the four- line text spots that appear next to search results, and from display advertising, which includes banner and video ads. Each type of ad contributes about 40 percent of revenue.
Social Sites
The U.S. market for ad sales on social-networking sites, dominated by Facebook, a privately owned company based in Palo Alto, California, and MySpace, will more than double to $900 million in 2007 and reach $2.5 billion in 2011, according to research firm EMarketer Inc. in New York.
``With up-and-coming players MySpace and Facebook becoming strong competitors in their own right, Yahoo's challenges are mounting,'' EMarketer said today in a report.
To regain momentum, Yahoo this month bought the 80 percent of New York-based Right Media Inc. it didn't already own for $680 million, giving it a company that handles online-advertising auctions.
To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net
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