Yahoo! CFO Likes Ad Trends

Yahoo! (YHOO Quote) continued its winning streak in the first quarter, beating analysts' estimates and guiding toward a strong second quarter as well. Its shares added 4% early Wednesday.

TheStreet.com spoke with Yahoo Chief Financial Officer Susan Decker following the earnings report, getting her thoughts on search-advertising trends, possible acquisitions and why free cash flow is important.

TSC: What trends are you seeing among advertisers in search-related advertising? Is pricing a big factor? In your conference call, you suggested there were better measures.

Decker: You could look at revenue from search in a variety of different ways. We're saying: Start with the customers and look at whether they're getting value from advertising through sponsored search.

Sue Decker

We can measure that by how many more of them are coming to our network. We also look at how much revenue per advertiser is increasing and whether they are increasing their budget or not. We think that's the most important thing.

As for how they spend it, it can be across more inventory, or it can be in buying higher-priced words. There's been a lot of focus on the how of that. It's really hard to make conclusions by going out and sampling prices and keywords, which is something that happened last quarter. There was a bit of an intraquarter discussion and a little controversy over whether pricing was falling off or not.

Revenue per search, which is one measure of pricing, has actually been flat to barely growing for probably six quarters now, but the search business has been very very robust. It's because of how they're spending it, which now happens to be on volume because inventory is expanding.

What evidence are you seeing of search growth?

It shows because they keep increasing their budgets more and more. They measure their paying on a price-per-click basis and how many of those clicks are actually converted into sales. They measure that very, very carefully. And as long as the return on investment is high for the ad dollars they spend and they attract customers at an attractive rate, then they're likely to keep using the medium. And we're seeing their budgets go up.