Yahoo! Giving Web Ad Market a Shout

At Yahoo! (YHOO Quote), it's all about the advertising.

Despite Yahoo!'s ongoing efforts to diversify its business with fees-and-listings revenue, online advertising will be the focus of attention when the Internet bellwether reports third-quarter results after the market's close Wednesday.

In part, that's because Yahoo! completed its acquisition of pay-per-click search engine firm Overture Services(OVER Quote) after Tuesday's shareholder vote on the merger. Such search engine advertising -- in which advertisers bid for top placement among search engine results but pay only when Internet users click on their listings -- has been the hottest growth area for online advertising in recent years. And the action in that arena has only gotten hotter in recent days.

But the attention stems also from Wall Street's perception that more conventional online advertising -- the business that boomed in the late-'90s dot-com frenzy but collapsed in the bust -- is enjoying a sustainable revival. Yahoo! shares fell $1.22 to $38.65 Tuesday.

Enthusiasm

On the basis of growing optimism about Yahoo!'s prospects, as well as greater confidence in all dot-coms that have managed to survive the shakeout, Yahoo!'s shares have climbed steadily over the past year.

Even after Tuesday's slide, Yahoo! shares remain more than 300% above their 52-week low of $9.01. The stock jumped 3.5% Friday after Thomas Weisel Partners issued a report revising postmerger estimates and raising its price target to $45 from $36. Weisel analyst Gordon Hodge has an outperform rating on the stock, and Hodge or a member of his family owns Yahoo! stock.

As for expectations, Yahoo! should report revenue of $338 million for the third quarter, according to the consensus of analysts surveyed by Thomson First Call. That's the high end of the $318 million to $338 million guidance Yahoo! gave in July, and it represents a 36% leap from the $248.8 million reported in the third quarter of 2002.