As Yahoo! (YHOO) prepares to reportquarterly results, investors are looking for moresigns that the company still has plentiful opportunitiesfor growth.
And over the past few weeks, Yahoo! has beendropping hints that it has them.
On Monday, Yahoo! is rolling out its latestvariation on pay-per-click search-engine advertising:job listings at the Yahoo! HotJobs employment site.That introduction follows Yahoo!'s official rollout,earlier this month, of Yahoo! Local, a search servicedesigned to tap into the $15-billion-or-so offlineyellow pages market.
Yahoo!'s move demonstrates the dynamic nature ofsearch advertising, the fastest-growing portion of thefast-growing online advertising business. It's an areawhere Yahoo! goes head-to-head with the newly public
and awaits furthermoves by
, whichis spending heavily to build up its own searchbusiness.
Over the past few months, analysts have beengaining confidence, thanks to a variety of signals,that overall online advertising growth continues to berobust and continues to pay off for Yahoo!.
But despite investors' willingness to believeYahoo! will continue to ride the online ad wave, WallStreet has had a poor record forecasting Yahoo!'sperformance so far this year, with analystsunderestimating how strongly the company would do inthe first quarter and overestimating growth prospectsin the second.
Yahoo!'s and Google's shares have enjoyed quite arun of late. Yahoo!'s shares have risen more than 35%since early August, approaching the 52-week high ithit right before second-quarter results helped knockshares downward. Shares in Google, which is slated toreport Oct. 21, are up more than 60% from the search-engine company's initial public offering in August.
While analysts seem generally confident thatYahoo! will meet or beat estimates for the quarter,the rise in Yahoo!'s stock heightens the risk ofdisappointment. In one signal of increasing caution,Jefferies analyst Youssef Squali cut ratings on bothYahoo! and Google from buy to hold earlier this week,citing valuation issues.
For the record, the consensus of analysts surveyedby Thomson First Call is for Yahoo! to report revenueof $644 million. Estimates range from $620 million atthe low end to $676 million at the top.
That figure excludes traffic acquisition costs, orthe money that Yahoo!'s Overture services pays toother Web publishers for the privilege of runningadvertising on their sites.
Operating income before depreciation andamortization -- the cash flow figure also known asEBITDA -- is slated to come in at $251 million.
Earnings per share is expected to be 9 cents, withestimates ranging from 8 cents to 10 cents.
HotJobs' rollout of pay-per-click ads -- keyed tosearch terms that job seekers might be looking for,such as "sales manager" -- represents a newapplication of search-based pay-per-click advertising.
Search advertising -- usually structured so thatadvertisers pay for each time a user clicks on the adto learn more, rather than just sees the ad -- hasshown phenomenal growth, a recent survey by theInteractive Advertising Bureau confirmed last month.
In the second quarter of 2004, search advertisingamounted to $947 million, according to the IAB, up 97%over the year-earlier quarter and now accounting for40% of online ad spending.
Display advertising -- the descendant of thebanner advertising that first dominated the commercialInternet -- grew 24%.
"The introduction of the recruitment industry'sfirst performance-based recruitment advertisingsolution is a unique advantage of the Internet,"Yahoo! said in a statement.
Credit Suisse First Boston's Heath Terry wrotelast week that Yahoo! gained market share in bothusers and search page views in the third quarter, andthat the average price for search keywords appeared toincrease. Terry has an outperform rating on Yahoo! anda $45 price target; his firm has done recentinvestment banking for Yahoo!.