Yahoo's $53.6M Net Loss Beats Expectations

Yahoo! (Nasdaq: YHOO) reported a net loss of US$53.6 million in its first quarter, slightly beating analysts' expectations, and earned higher-than-expected revenue of $192.7 million.

"I would characterize this quarter as one that demonstrates strong performance and outstanding growth in a time of economic turbulence," Yahoo! chairman and CEO Terry Semel said in a conference call.

Better Days Ahead

The company also raised its projections for the second quarter. That forecast may give a much-needed boost to the Internet sector because Yahoo! is generally considered a bellwether for Web firms.

Yahoo! said it expects revenue for the second quarter will come in at between $205 million and $225 million, while earnings will fall in the $23 million to $33 million range.

According to company chief financial officer Susan Decker, the upward revision is due in large part to the acquisition of online career company HotJobs, which Yahoo! expects will contribute $20 million to $25 million in revenue during the second quarter.

Another contributor to the boosted forecast is an extension through the second quarter of a paid search deal with Overture.

Semel said Yahoo's paid search feature is performing "very well," and he noted that HotJobs will be fully integrated into Yahoo! by this fall.

"All of those factors contributed to [the] upgrade in guidance," Decker said in a conference call, though she added that Yahoo! expects the "current cyclical conditions" in the industry to continue.

Profitable Operations

Despite reporting a net loss for the quarter, Yahoo's operations were in the black. Without a $64 million accounting charge -- which reduced earnings by 11 cents per share but, according to Decker, did not affect Yahoo's cash position or operations -- the company saw operating earnings of $24.4 million, or 2 cents per share. Earnings in the first quarter of 2001 totaled $900,000.

Analysts had been expecting operating earnings of 2 cents per share on revenue of $175 million, according to First Call/Thomson Financial.

Advertising Weakness

One way in which Yahoo! maximized revenue during the first quarter was by shifting away from its reliance on Internet advertising, which continues to be soft.

Marketing and advertising still made up the lion's share of total revenue for the quarter at $121 million, but transactions and listings accounted for 37 percent of Yahoo's total revenues, a significant increase from earlier periods.

Yahoo! made $16.7 million from transactions and $55 million from fees and listings.

"The sluggish state of the ad market has contributed to this shift in mix," Decker said, adding that Yahoo's top 200 ad clients still generate 50 percent of the company's total revenue.

Transaction revenue was driven by Yahoo's increased focus on e-commerce. The company processed $776 million in transactions, and the three-day "Biggest Sale in Internet History," which Yahoo! launched in March, increased transactions by up to 500 percent for some Yahoo! merchants.

'Not Out of the Woods'

Morningstar analyst George Nichols told the E-Commerce Times that Yahoo's results were positive overall, but also a "mixed bag."

Nichols said he is "pleasantly surprised" by how well Yahoo! is increasing its revenue from transactions, fees and listing. "This helps Yahoo! partially insulate itself from the highly cyclical online ad market," he noted.

But he added that the company should not rest easy until all the pieces of the puzzle are back in place.

"Online advertising has not bounced back yet (contrary to the belief held by many investors), merely stabilized. Yahoo! is not out of the woods until the online ad market regains steam," Nichols said.