Mixed results for Yahoo!'s Q4

13% revenue gain beats Street; Panama set for Feb. 5

Yahoo! Inc. offered quarterly financial results that were a tad better than expected and forward guidance that was slightly worse than analysts' consensus, though Tuesday's earnings report was overshadowed by the company's assurance that its new ad platform is ready for debut next month.

Enthusiasm for the Feb. 5 launch of what Yahoo! has been calling Project Panama had investors bidding up shares of Yahoo! up 6% in after-hours trading after they slipped 1.7% to $26.96 during the regular session.

It is Yahoo!'s goal to better monetize its search advertising — in a similar fashion to Google Inc. — through Panama, which ranks keywords not only by advertiser bids but also by quality so that ads are more relevant to Internet searchers and more valuable to ad buyers.

"We have successfully transitioned the large majority of our revenue to the new search system known as Project Panama," CEO Terry Semel told analysts during a conference call Tuesday.

All of the company's search advertising in the U.S. should be transitioned by the end of the current quarter, Semel said.

Chief financial officer Sue Decker added that Yahoo! should begin seeing a positive financial impact from Panama in the second quarter.

Fourth-quarter profit at Yahoo! slid to $269 million compared with the year-ago quarter's $683 million as option expenses dented its bottom line this time around while a $310 million one-time gain boosted last year's.

Revenue was up 13% to $1.7 billion, and revenue excluding traffic acquisition costs, or the portion Yahoo! pays to marketing partners, was up 15% to $1.23 billion.

Yahoo! forecast first-quarter revenue excluding traffic acquisition costs to be as much as $1.23 billion, while analysts expect up to $1.38 billion.

"We expect outperformance in the quarter and a Feb. 5 launch of marketplace for Project Panama should be positives offsetting below-expected guidance," said Goldman Sachs analyst Anthony Noto, who calls Yahoo! shares "attractive."

Semel, a former co-CEO of Warner Bros., talked up partnerships with traditional media companies, playfully referring to the CW as the "WC."

He said Yahoo! is fixated on online video, along with Internet social networking and mobile media, as growth opportunities. He said the Internet will gain 800 million new users by 2010, when about $55 billion should be spent on online advertising.

Video advertising, including the sponsorship of professional and user-generated content, hasn't lived up to the hype it has generated, but Semel has faith in the concept.

"A lot of learning is starting to take place," he said. "It's going to be a big opportunity down the road."
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