Search engine company reports 1Q sales and earnings that are in line with estimates; stock soars as investors' fears abate.
By Paul R. La Monica, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) - Yahoo! didn't blow away estimates for first-quarter sales and earnings. But given how negative many investors were feeling heading into the company's first-quarter report Tuesday, it probably didn't have to.

Investors, who had been fearing a disappointing quarter and weak guidance from the company after the company missed fourth-quarter earnings estimates in January, rewarded the stock. Shares shot up more than 6 percent in after-hours trading according to Inet. That followed a 1.1 percent gain in Yahoo!'s stock in regular trading on the Nasdaq Tuesday.

Yahoo! CEO Terry Semel was defiant during the company's first quarter conference call, pointing out the strength of its diversified online strategy.
Yahoo! CEO Terry Semel was defiant during the company's first quarter conference call, pointing out the strength of its diversified online strategy.
Yah-boo-hoo: Shares of the search engine firm took a hit earlier this year but could be poised to bounce back after reporting solid first-quarter results.
Yah-boo-hoo: Shares of the search engine firm took a hit earlier this year but could be poised to bounce back after reporting solid first-quarter results.

The world's second-largest search engine firm reported sales for the first quarter, excluding traffic acquisition costs (or TAC) that it shares with advertising partners, of $1.09 billion. That was slightly higher than the $1.08 billion that Wall Street analysts were forecasting. Earnings per share came in at 11 cents, in line with estimates.

Sales were up 33 percent from a year earlier, while profit, including the cost of stock options, dipped. Yahoo! (Research) did not expense options a year earlier. Excluding the cost of stock options, Yahoo!'s earnings were up 18.5 percent from the same period last year.

The company also issued revenue guidance for the second quarter and 2006 that was roughly in line, albeit slightly below, Wall Street's consensus estimates. The company said sales, excluding TAC, would be in a range of $1.08 billion to $1.16 billion for the second quarter and that sales for the full year would be $4.6 billion to $4.85 billion, again excluding TAC.

According to consensus estimates, analysts were predicting revenue of $1.14 billion for the second quarter and $4.76 billion for all of 2006.

Yahoo! does not provide earnings-per-share guidance. Analysts are expecting a profit of 13 cents per share for the second quarter and 54 cents a share for the full year.

Laura Martin, an analyst with Soleil-Media Metrics, an independent research firm, said it was a pleasant surprise to see that revenue for the first quarter was a bit higher than expectations.

Still, Yahoo! (Research) shares have fallen 22 percent since the company reported fourth-quarter earnings in mid-January.

Shares of Yahoo!'s top rival, Google (Research), also benefited from the news. The stock moved up about 3 percent in after-hours trading. Google will report its first-quarter results after the closing bell Thursday. Shares of prominent online retailers eBay (Research) and Amazon.com (Research) also gained slightly in after-hours trading. eBay will report its first quarter results Wednesday.

Yahoo!'s Semel: Don't count us out

Both Yahoo! and Google are enjoying robust growth due to a healthy demand for online advertising. And although data from various online traffic tracking firms show that Google is continuing to increase its market share lead over Yahoo! in the online search area, selling ads tied to specific keywords, Yahoo! has been able to continue to post strong results due to its strength in other areas, such as so-called branded advertising, which uses banners and videos.

During a conference call with analysts, Yahoo!'s chief financial officer Terry Semel said that video ads have not had a big impact on sales just yet but that over the next few years, he expects that to change.

"Video is just beginning. It is in the very early days," he said.

Semel added during a conference call with analysts Tuesday that the company plans to launch new search features for advertisers later this year in order to improve the results of its search queries and make them more relevant for marketers. He said that testing on certain portions of the new platform will soon be complete that a phased roll out of the advertising service would begin during the second half of the year.

Semel also said that Yahoo! would share more details about the revamped search platform at its analyst meeting in May.

The company has several businesses that generate fees, including fantasy sports sites, job listings, and a store that sells music downloads. Revenue from fee-based businesses at Yahoo! accounted for about 12 percent of sales in the first quarter and increased by 25 percent from the same period a year earlier.

"Yahoo is really off to a good start in 2006," said Semel, who later in the call appeared to be taking a jab at critics who have argued that Yahoo! is no longer as relevant as Google. He pointed out that Yahoo!, thanks to acquisitions and new products and services, averages about 3.8 billion page views a day.

"If you don't think we continue, we do," he said, adding that he believed the company's "diversified strategy" positioned Yahoo! well to take advantage of both current and future trends in online advertising.

Derek Brown, an analyst with Pacific Growth Equities, agreed with that assessment.

"It was a solid quarter from the company," Brown said "Yahoo! is clearly moving forward with its new search platform and remains a very strong player in all segments of the online ad market."

The company also reported strong growth in its international business, which accounted for 30 percent of total sales in the first quarter. Susan Decker, Yahoo!'s chief financial officer, said during the conference call that revenues from outside the U.S., adjusted for currency fluctuations, increased by 41 percent from the 2005 period.

Co-founder Jerry Yang added that Yahoo! was seeing particular strength in Japan as well as in China. Yahoo! announced an investment in Chinese e-commerce firm Alibaba.com last year.


For more about the burgeoning world of online video, click here.

What should Google do with its $10 billion war chest? Click here.

For a look at more Internet stocks, click here.

Analysts quoted in this story do not own shares of the companies mentioned and their firms have no investment banking ties to the company. Top of page

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