SAN FRANCISCO/NEW YORK (Reuters) - Yahoo Inc posted a drop in quarterly profit on Tuesday and forecast 2008 revenue
below Wall Street forecasts as it cuts jobs and invests to shore up its
Web advertising business.
Shares in Yahoo fell nearly 11 percent in extended trading. Yahoo's
revenue forecasts for the upcoming year disappointed investors, even
though Wall Street analysts have already slashed their expectations of
Yahoo's ability to increase Internet advertising revenue in a weakened
U.S. economy.
The company warned that it faced "headwinds" in 2008 and outlined a
plan to cut about 1,000 jobs. It also revised a deal with AT&T Inc
that will cut into revenue this year. The restructuring will lead to better cash flow in 2009, it said.
"Yahoo is a company and a business in transition," said Cantor
Fitzgerald analyst Derek Brown, who rates the stock neutral. "The
payoffs are not likely to show up until at least the second half of
this year or perhaps sometime in 2009."
Most advertising sectors, including autos, pharmaceuticals,
telecommunications and packaged goods, are off to a solid start this
year and are expected to enjoy growing online budgets during 2008,
President Susan Decker said.
However, financial, travel, and retail advertisers -- sectors hit
hard by the weakening economy -- suffered declines from a year ago,
Decker said. She cautioned that: "We're obviously watching economic
developments very closely."
Fourth-quarter profit fell more than 23 percent to $205.7 million,
or 15 cents per share, from $268.7 million, or 19 cents per share, a
year ago. Overall revenue rose 8 percent to $1.83 billion and revenue
excluding payments to advertising partners rose 14 percent to $1.4
billion.
Analysts, on average, had forecast earnings per share of 11 cents on
revenue of $1.41 billion excluding traffic acquisition costs, according
to Reuters Estimates.
"(Fourth-quarter results) indicate they have already done some belt
tightening from a cost standpoint," said Martin Pyykkonen, an analyst
with Global Crown Capital.
But Yahoo's larger share of the corporate display ad market makes it
vulnerable to spending pullbacks in a recession. Analysts expect
archrival Google Inc to fare better in a downturn with its dominance of paid search, a form
of marketing where advertisers pay when customers click on ads.
2008 HEADWINDS
Chief Executive Jerry Yang predicted a tough 2008 as he pledged to
reduce the company's 14,500 employees by nearly 7 percent. Job cut
details will be announced in mid-February.
"While we will continue to face headwinds this year, we believe that
the moves we are making will help us exit 2008 stronger and more
competitive and return to higher levels of operating cash flow growth
in 2009," Yang said in a statement.
"Looking to 2008, we are taking an aggressive investment posture,"
Yang told investors on a conference call held to discuss the quarterly
results. "We're making profound, fundamental changes to virtually all
aspects of our business."
One focus of investment in 2008 is on creating a large-scale network
for buying and selling online advertising. Yang said these upgrades
promise to "accelerate our overall advertising revenue growth by the
time we exit 2008."
Yahoo forecast revenue excluding advertising affiliate payments of
$5.35 billion to $5.95 billion for the full year. Analysts, on average,
had forecast revenue of $5.54 billion to $6.40 billion for 2008,
according to Reuters Estimates.
Separately, Yahoo said it has revised a key subscription revenue
deal with AT&T, the largest U.S. phone company. Instead of
receiving a cut of subscription fees for each broadband user AT&T
signs up, Yahoo will share advertising revenue from Yahoo services that
appear on AT&T Web sites, Internet TV and mobile phone services.
AT&T counts 70 million mobile phone customers.
The companies did not disclose terms, but Wall Street analysts had
expected a new deal would see AT&T slash the amount of subscription
fees it shares with Yahoo in favor of less-consistent, but potentially
more lucrative, ad revenue.
2008 revenue will suffer a decline of $150 million to $200 million
compared with 2007 on revised broadband deals with AT&T and BT of
Britain and Rogers of Canada, excluding payments to affiliated sites on
which Yahoo sells advertising.
Yahoo will take a charge of $20 million to $25 million against
first-quarter earnings to cover 1,000 or so job cuts. More than
offsetting this is a gain of $450 million to $550 million Yahoo stands
to receive on its share of the proceeds from its stake in recent Hong
Kong IPO Alibaba.com
Yahoo shares fell to $18.56 in extended trading after closing at
$20.81 on the Nasdaq. The stock is off 45 percent from a year-high
level around $34 set in October.
(Editing by Braden Reddall)
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