Yahoo! Slips on Steady Guidance

Revenue surges to $511 million, but the bottom line only hits estimates.
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Updated from Jan. 14

Yahoo!

(YHOO)

met its match Wednesday in techinvestors' rising expectations, and its shares reflected that in premarket trading Thursday

The big Internet media company sailed past WallStreet's targets after the bell, postingfourth-quarter earnings of $75 million, or 11 cents ashare, on net revenue of $511 million. But as someobservers had cautioned, the company's strongperformance wasn't enough to forestall the oft-invokedsell-the-news instinct, and Yahoo! shares fell $1.65, or $3.41%, to $46.74 inearly trading Thursday.

It wasn't that the numbers were terribly weak. TheThomson First Call analyst consensus estimate hadcalled for earnings of 11 cents a share on net revenueof $495 million. Net revenue excludes thetraffic-acquisition costs, or TAC, that Yahoo! pays onlinesearch partners such as

Microsoft

(MSFT) - Get Report

. Ayear ago, Yahoo! earned $46 million, or 8 cents ashare, on revenue of $286 million.

Looking ahead, Yahoo! gave guidance straddlingWall Street's expectations going into the call. In thefirst quarter ending March 31, Yahoo! projectsrevenue, excluding traffic acquisition costs paid byits Overture Services subsidiary, of between $475million and $505 million. Analysts surveyed by ThomsonFirst Call had been expecting first quarter revenue of$492 million, net of TAC, and earnings per share of 11 cents.

For full-year 2004, Yahoo! forecasts after-TAC revenue inthe range of $2.12 billion to $2.25 billion. Analystshad been expecting 2004 revenue of $2.17 billion.

"Yahoo!'s fourth-quarter performance completes ayear of phenomenal growth for our company, andrepresents the most successful quarter in the historyof Yahoo!," CEO Terry Semel said in a statement. "Great productsequal great business," Semel added on a postcloseconference call.

Still, considering the massive appreciation in thealready red-hot Internet sector -- where shares ofYahoo! and its blue-chip online peers

eBay

(EBAY) - Get Report

,

Amazon.com

(AMZN) - Get Report

and

InterActiveCorp

(IACI)

have been marchingsteadily higher for the better part of a year -- thepostclose selloff hardly came as a shock. Indeed, someanalysts suspected Yahoo! shares could slip followingthe report if it failed to boost its first-quarterguidance well beyond the consensus.

Each of Yahoo's different business segments was in line with analyst expectations, which had crept up beyond the First Call numbers in the days preceding the release of fourth-quarter results.

Net marketing services revenue in the fourth quarter, boosted by the acquisition of the Overture Services pay-per-click search engine operator, amounted to nearly $393 million, double the marketing services number reported last year.

On the call, Semel said the company's marketing services revenue grew more than 40% on an organic basis -- that is, excluding acquisitions -- and gained momentum throughout 2003. He forecast that ad revenue would grow an additional 25% to 30% in 2004, exceeding the 20% growth in online advertising that some observers expect.

Fees revenue grew 37% from the prior year to $85.2 million in the fourth quarter, driven by the company's Internet access offering with

SBC Communications

(SBC)

, small business services and personals. The company has what it calls "paying relationships" with nearly 5 million Yahoo! users, up from 4.3 million at the end of the third quarter.

Listings revenue grew 21% to $33.2 million, thanks to the company's HotJobs business and other activities.

Excluding contributions from recently acquired businesses, Yahoo! is forecasting organic revenue growth of 31% to 36% in the first quarter of 2004 and 25% over the full year.

The stock has nearly tripled over the last year asWall Street has rediscovered its love of pricey growthplays in the Internet and telecom businesses. Yahoo!has impressed shareholders over the last year byexpanding its business and boosting its profitmargins, but the company's shares continue to trade inthe neighborhood of 90 times 2004 earnings estimates.