Yahoo! Inc. reported third quarter earnings yesterday that beat Wall Street expectations but didn’t put to rest lingering questions about the health of the display advertising market, which generates a large portion of Yahoo!’s revenue.
Reliance on Display Ads
Yahoo! reported revenue of roughly $1.5 billion for the quarter-end Sept. 30 and net income for that quarter of roughly $186 million. This included a one-time profit of roughly $98 million from the sale of Yahoo!’s investment in Alibaba, the Chinese web portal. Total quarter-end revenues and profits were down from the same quarter in 2008, but expected by observers due to Yahoo!’s reliance on branded display advertising, which has been soft during the current recession. This is in contrast Google’s revenue, which comes almost exclusively from pay-per-click text ads.
Approximately $1.4 billion of Yahoo!’s total revenue for the quarter, or 93 percent of the total, came from what Yahoo! calls “Marketing Services.” This is largely banner ad income on Yahoo!-owned sites and on sites of third-party affiliates that Yahoo! represents.
Fee Income Includes Hosted eCommerce Platform
Just $198 million of Yahoo!’s revenue came from the “Fee” category, which includes premium email offerings, personals, and services to small businesses. These small-business services presumably include Yahoo! Merchant Solutions, the hosted ecommerce platform that is used by roughly 50,000 smaller ecommerce merchants. Yahoo!’s platform is the largest hosted ecommerce solution and it’s that platform that Yahoo! is reportedly looking to sell, according to Reuters. All told, Yahoo! reported on June 30, 2009 that 8.6 million customers pay for its fee-based services.
Under new CEO Carol Bartz, Yahoo! has been cutting costs and shedding portions of its business. On June 29, 2009 Yahoo! entered into an agreement with Microsoft to use the latter’s new Bing search technology for its search engine. Under the pending agreement, which is awaiting U.S. regulatory approval, Microsoft will also sell pay-per-click search ads for Yahoo! The agreement does not include the serving and selling of Yahoo’s banner display ads.
During the conference call yesterday, Yahoo’s chief financial officer expressed guarded optimization on the rebound of display ads. This feels like stabilization,” said CFO Tim Morse who went on to add, “The economy is starting to loosen up.” Morse briefly addressed the pending search agreement with Microsoft, saying he was optimistic the deal would meet with regulatory approval and be closed in early 2010.
Stock Price Near 52-week High
The price of Yahoo!’s common stock closed yesterday at roughly $17 per share, which is close to a 52 week high. During that period, the price has fluctuated between $9 and $18 per share. Yahoo!’s market capitalization (the price of the common shares times the number outstanding) is approximately $25 billion. Google’s market cap, by comparison, is roughly $174 billion and InterActiveCorp, the owner of Ask.com and various content sites, has a current maket cap of $2.5 billion. On Sept. 30, Yahoo! held $1.9 billion of cash and investments with, essentially, no debt.