Yahoo Suffers 61% Hit to Profits, but Panama Boosts Shares

Yahoo reported yesterday that Q4 profit was off 61% from last year, but its shares rose 5.6% on news that Panama, its long-awaited new ad software, will be rolled out next month. Net income dropped to $269 million, or $0.19/share, from $683 million, or $0.46, a year earlier, when it had a $340 million one-time gain. The EPS report beat Street estimates of $0.13. Sales met forecasts with a 13% rise to $1.7 billion, but were still the slowest Yahoo has experienced in years. Results reflected tough competition from Google as well as stratospheric costs for employee stock options, which were $56 million versus $11 million last year. Newly restructured Yahoo will take on Google head-on with the February 5 rollout of Panama, a feature that allows Yahoo to sort search ads by relevance. Yahoo expects Panama to boost revenue per search 10% by H2 2007. The rollout was delayed from July to October and then to March due to technical difficulties in upgrading clients -- difficulties that persist, particularly among smaller customers. Yahoo provided Q1 net revenue guidance of $1.12-1.23 billion, behind the $1.28 billion Street estimate. For full-year 2007, Yahoo provided sales guidance of $4.95-5.45 billion, also shy of analyst forecasts. In related news, Yahoo Japan Corp. today reported a 20% rise in quarterly profit on the increased popularity of its auction site and online mall. Net income rose to 15.2 billion yen ($125 million) versus 12.7 billion yen a year ago, at the high end of company forecasts and slightly behind analyst estimates. Yahoo Japan is one-third owned by U.S. Yahoo.

• Sources: Wall Street Journal (I, II), Bloomberg, MarketWatch Conference call transcripts: Q4 2006
• Related commentary: Yahoo Issues Weak Forward Guidance, Announces Early 'Panama' Roll Out, Yahoo: The Real Problem With Panama, Yahoo's Report Tonight Unlikely To Impress
• Potentially impacted stocks and ETFs: Yahoo! Inc. (YHOO). Competitors: Google Inc. (GOOG). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN)

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