Yahoo! Rallies After Earnings

Third-quarter earnings come in at a dime a share, a penny ahead of Wall Street expectations.
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Updated from Oct. 8

Yahoo!

(YHOO)

did its part to justify Wall Street's reviving faith in tech stocks, posting numbers that handily exceeded third-quarter targets.

The shares were surging Thursday morning, up $4.74, or 12%, to $43.53 after being upgraded to buy from hold at Deutsche Bank. The brokerage cited an acceleration in its branded advertising and search businesses.

For the period ended Sept. 30, the Sunnyvale, Calif., Internet media giant posted earnings of $65 million, or 10 cents a share, up from $29 million, or 5 cents a share, a year earlier. Revenue jumped 43% to $357 million. Wall Street had expected a 9-cent profit on sales of $338 million.

In the third quarter, Yahoo! saw year-over-year double-digit percentage growth increases in its advertising, fees and listings revenue line items, pointed out Yahoo! Chairman Terry Semel in a statement, "demonstrating that we delivered strong, diverse and balanced growth."

Along those lines, third-quarter revenue from marketing services -- which includes both traditional online advertising and the faster-growing paid search business -- rose 48% from a year earlier to $245.1 million.

Fees revenue grew 38% to $79.4 million, driven mostly by the company's Internet service alliance with

SBC

(SBC)

, but also reflecting Yahoo! Personals and upgraded email services.

Listings revenue grew 26% to $32.4 million for the quarter, thanks primarily to the company's HotJobs unit, acquired in February 2002.

Ramping
Yahoo!'s 2003 rally

Yahoo! has continued to diversify its operations with expanding fees-and-listings revenue, but Wall Street's attention remains closely focused on online advertising. Of course, that business boomed in the late-90s dot-com frenzy before collapsing in the bust, and now appears to be enjoying a sustainable revival.

Traditional, brand-building advertising grew 20% in the third quarter, Semel told analysts on the company's Wednesday evening conference call. Particularly strong advertising areas, Semel said, were pharmaceuticals, entertainment, autos, technology and telecom. Paid search revenue more than doubled in the quarter.

Making Overtures

Like other companies mindful of Wall Street's postboom concern with cash generation, Yahoo! called attention Wednesday to its operating income figures. Third-quarter OIBDA amounted to $116.5 million, more than double the $59.2 million from the third quarter of 2002 and ahead of the most optimistic estimates.

Looking ahead, Yahoo! gave guidance taking into account its acquisition Tuesday of pay-per-click advertising firm

Overture Services

. Yahoo! is forecasting full-year 2003 operating income before depreciation and amortization in the range of $428 million to $448 million.

For purposes of comparison, Thomas Weisel Partners analyst Gordon Hodge had been forecasting $418 million in OIBDA for the combined Yahoo! and Overture.

The top-line forecast, however, isn't quite so straightforward. Rather than provide revenue guidance for a combined Yahoo! and Overture, Yahoo! is forecasting "revenues excluding TAC," or traffic acquisition cost. That number is the combined revenue for the two companies, less the percentage of Overture revenue -- lately in the range of 64% -- that the search engine firm pays to Web properties, including Yahoo!, for the privilege of displaying its listings on their sites. Revenue excluding TAC for the year 2003 will be in the range of $1.42 billion to $1.46 billion, according to Yahoo! -- ahead of the current Yahoo!-only analyst consensus of $1.31 billion.

The company provided no guidance for 2004.

Relevant to such competitors as

AOL Time Warner's

(AOL)

America Online and

RealNetworks

(RNWK) - Get Report

, Semel told analysts Wednesday that Yahoo! was developing various packages of premium stand-alone content along the lines of "Bring Your Own Access" services -- a phrase used by AOL to describe content it sells to broadband subscribers who get Internet access from other sources. Parts of these forthcoming services, said Semel, could be seen in the content that its customers get in ISP packages Yahoo! offers in conjunction with SBC and

BT

(BTY)

.

Ahead of Wednesday's postclose press release, Yahoo! shares slipped 14 cents to $38.79. The stock gained 44 cents in after-hours trading following the earnings report.