Guidance and Visibility

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Yahoo Q2 results on deck

By Bambi Francisco, CBS.MarketWatch.com
Last Update: 10:45 AM ET Jul 9, 2002
SAN FRANCISCO (CBS.MW) - If CNet is any guide, counting on online advertising to pay the bills is still a tough proposition.

Now, it's time to take the pulse of online advertising from one of the most popular sites on the Web, Yahoo. The online media company, which has attracted some 237 million Internet users around the world, and at least one talking dolphin, is set to release its results for the three months ending in June after the close Wednesday.

And even though Yahoo is making progress diversifying its revenue stream by adding businesses that generate services-oriented fees, online advertising sales still account for 63 percent of total revenue.

Ahead of Yahoo's report, Yahoo shares meandered in and out of negative territory Tuesday morning. In recent trading, the stock traded at $12.80, down slightly.

Analysts surveyed by Thomson Financial/First Call expect Yahoo (YHOO), which employs about 3,500 people, to earn the equivalent of 2 cents a share, unchanged from the first quarter, based on pro forma reporting. It lost 4 cents a share in the same period last year. It's expected to generate sales of $214 million, up 11 percent from the first three months of this year, and up 18 percent from the same period in 2001.

Recall, CNet (CNET) warned in late June that second-quarterly sales would fall 19 percent from the same period last year. This outlook was due to an expected 5-percent revenue shortfall from CNet's previous outlook. The company said it expected to report second-quarter revenue of between $57 million and $58 million, compared to its previous outlook for $58 million to $63 million. AOL Time Warner's (AOL) advertising/commerce revenue is expected to decline by 40 percent, according to Merrill Lynch's estimates. Overall advertising is forecasted to fall 17 percent year-over-year.

The fallout from the weak ad market continues. Business Week is reporting on some concerns AOL may have to take another goodwill write-down to reflect the decline in value of Internet business AOL online. Due to the weak advertising market, especially in the high-tech industry, CNet said in late June that it would cut staff by 10 percent, leaving it with roughly 1700 employees.

For its part, Yahoo let some employees go recently as it shut down its online TV network called Yahoo Finance Vision. Yahoo still employs roughly 3,500 people.

Merrill: Upward guidance?

Despite the unfavorable environment, Merrill Lynch is telling its clients that it's likely Yahoo will raise its objectives for the second half of this year due to the extension of its Overture (OVER) deal announced April 25.

For the second half of the year, Yahoo is expected to earn 2 cents a share in the current quarter and 4 cents a share in the fourth quarter. For the full year, Yahoo is expected to earn 10 cents a share. Annual earnings are then expected to grow to 19 cents in 2003.

As for sales, Yahoo, analysts predict, will grow quarterly revenue by 8 percent sequentially in the third quarter to $231 million. From that base, the analysts peg sales to grow by 13 percent to $261 million during the holiday quarter.