Yahoo! admits 38 per cent drop in profits

Yahoo!’s share price took a severe knock on Wall Street after it announced a 38 per cent drop in its third quarter profits. Shares were down nearly five per cent at one point in Wednesday’s trading at $22.95 compared with $24.75 at the opening. In January this year, the stock was trading at over $43.

Yahoo! admits 38 per cent drop in profits

Revenues were $1,580 million for the third quarter of 2006, a 19 per cent increase compared to $1,330 million for the same period of 2005. However, the cost of doing business and operating expenses shot up, which meant that net income for the quarter was only $158 million, compared to $253 million a year ago.

Terry Semel, chairman and CEO of Yahoo! said ‘While we are tremendously excited about many things happening at Yahoo!, we are not satisfied with our third quarter financial performance’.

One reason why the Yahoo! share price has been in the doldrums is the delays to the ‘Panama’ software, which provides the underlying engine to allow advertisers to bid and place ads through Yahoo! Marketing Services (formerly Overture). The company shares already suffered a setback earlier this year when it announced Panama’s delay until Q4. As part of the sweetener for the bad news about the Q3 results Semel said: ‘Looking forward, we are excited about the roll-out of our new Project Panama advertising platform.’

Sure enough Search Engine Watch is reporting that Panama is now live and that it will be rolled out to early testers next week and voluntary migration of existing customers will be offered over the next few months. Mandatory migration will happen next year.

Among the new features are Campaign Scheduling to allow marketers to set a start date and end date for campaigns, and faster ad activation (compared with the previous three to five day wait, ads are live within minutes). Panama also supports multiple ad testing.

However, Yahoo! is still seen as slow footed compared with its principle competitor Google. eMarketer is estimating that Google will take a quarter of all online ad revenues in 2006. The analysts point out that a year ago Google and Yahoo! both posted US ad revenues of more than $2.4 billion. The picture looks very different in 2006. eMarketer is forecasting Google ad revenues at $4 billion while Yahoo!’s ad revenue will be ‘only’ $2.9 billion. To make matters worse, last week Yahoo! allowed YouTube to slip through its fingers and into the hands of Google.

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