Analysts Look to Yahoo

NEW YORK — Yahoo Inc. is expected to post declining sales and profits when it releases third-quarter results after the market close Wednesday.

For most of this year, the Sunnyvale, Calif., Web portal has been hurt by a sharp downturn in the online advertising market. Yahoo generates about 80% of its revenue from sales of ads on its Web sites.

The company has tried to move away from its dependence on advertising revenue by charging fees for certain online services, but some analysts are still concerned that the company’s progress has been too slow. They are eagerly awaiting comments from new Yahoo Chairman and Chief Executive Terry Semel in a conference call scheduled for 5 p.m. EDT, to get a clearer sense of his vision for Yahoo’s future.

“We believe most Internet media companies faced continued challenges during the third quarter, which were exacerbated by the events of Sept. 11,” JPMorgan H&Q analyst Paul Noglows wrote in a research note this week.

Mr. Noglows estimated Yahoo (YHOO) earned a penny per share, excluding goodwill amortization and other items, in the quarter ended Sept. 30, down from 13 cents a share a year earlier. He put revenue at $172.5 million, a 42% drop from $295.6 million posted last year. His earnings estimate matches the mean estimate of analysts surveyed by Thomson Financial/First Call. The First Call estimate of Yahoo’s third-quarter revenue is $170 million.

Wall Street’s expectations of Yahoo’s third quarter are largely in line with the company’s own projections, and in some areas even slightly more optimistic. In July, Yahoo predicted it would break even, excluding items, on revenue of $160 million to $180 million in the third quarter. The company hasn’t formally adjusted guidance since then.

As always, investors will be particularly interested in Yahoo’s outlook. Before Sept. 11, the online-ad market was showing signs of stabilization, and Mr. Semel and others in the industry were predicting a recovery would begin in mid-2002. Online-ad spending inched up to $1.54 billion in August from $1.53 billion in July, according to AdZone Interactive, a research firm.

But the Sept. 11 terrorist attacks dealt a serious blow to the prospects of an online-ad market recovery, some analysts said. AdZone hasn’t yet released its estimate of September’s levels.

Now, ABN Amro analyst Arthur Newman doesn’t expect the online-ad market to rebound before late 2002. He thinks his estimates of Yahoo’s 2002 results will be too high, although he is waiting until Wednesday’s earnings report to change them. Mr. Newman predicted Yahoo would earn 12 cents a share in 2002, up from an estimated five cents a share this year.

To cushion against the slump in online advertising, Yahoo will have to move ahead with the introduction of new, fee-based services, analysts say.
“We believe management has only a few quarters — not years — to demonstrate it can develop or acquire premium services meaningful enough to diversify the company’s sales and reignite growth,” Merrill Lynch analyst Henry Blodget said in a research note.

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