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Economy
Wednesday, 18-October-2006
SUNNYVALE, Calif. -- - Yahoo Inc. said Tuesday that third-quarter profit slid 37 percent as sales growth fell to the slowest pace in four years.

The slowing revenue growth has raised investor doubts about the Internet bellwether's strategy and execution, and the disappointing results were compounded by a dimmed outlook for the current quarter.

But Yahoo Chairman and Chief Executive Terry Semel offered hope for a turnaround next year by acknowledging the company's recent difficulties and vowing to fix them with a "back to basics" approach.

The promise helped lift Yahoo's sagging stock price, which increased by about 3 percent in extended trading after ending the regular session on the Nasdaq stock market down 3 cents, at $24.15. The company's market value has plunged 38 percent this year, wiping out more than $20 billion in shareholder wealth.

Yahoo said net income declined to $158.5 million, or 11 cents a share, from $253.8 million, or 17 cents a share, a year earlier. It cited new rules requiring companies to deduct the cost of employee stock options. The most recent result was line with estimates.

Revenue increased 19 percent, to $1.58 billion, but after subtracting commissions Yahoo paid its advertising partners, revenue was $1.12 billion, missing lowered estimates.

Yahoo faces competition from Google Inc., MySpace.com and YouTube.com for customers. Last week, Google agreed to buy YouTube, stepping up pressure on Yahoo.

"Yahoo definitely has challenges, and they need to address these challenges one by one," said Jefferies & Co. analyst Youssef Squali. "There is very little incentive to own the stock at this point."

In Web search, Yahoo handled 29 percent of U.S. queries in August, down from 30 percent a year ago, while Google's market share rose to 44 percent from 37 percent, according to market researcher ComScore.

"Google remains the better horse to ride at this point," said Barry Randall at MTB Investment Advisors in Baltimore.

Semel punctuated his pledge by announcing that Yahoo had finally started to roll out much-anticipated improvements to its system for selling and distributing ads tied to search terms and other topics displayed on a Web page.

The new platform, which Yahoo abruptly delayed three months ago, is considered the key to the company's comeback efforts. The changes aren't expected to begin boosting Yahoo's profits until next year.

"I am not satisfied with our current financial performance, and we intend to improve it," Semel assured analysts in a conference call. "We are not exploiting our considerable strengths as well as we should be."

Yahoo didn't give investors any reason to feel better about the current quarter, traditionally the company's most lucrative because the holiday shopping season encourages more advertising.

Excluding ad commissions, Yahoo forecast its fourth-quarter revenue will range from $1.15 billion to $1.27 billion. Analysts are expecting $1.3 billion, according to Thomson Financial.

"There are definitely legitimate concerns" about Yahoo, said American Technology Research analyst Rob Sanderson. "It has become a `show-me' stock and [the company] hasn't been showing much."

Source: Chicago Tribune
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