Semel 'not satisfied' with Yahoo!

Q3 profit plunges 38%, cuts Q4 guidance; Panama set for '07

Just before announcing third-quarter earnings Tuesday that about matched Wall Street's lowered expectations, Yahoo! Inc. said that it has acquired one online advertising company while buying a piece of another. Then, the company run by CEO Terry Semel cut financial guidance for the current quarter and the year.

The slashed forecast was overshadowed by Semel's assurance that Yahoo!'s delayed ad platform dubbed Project Panama will be ready early next year.

"Starting today, we've begun inviting advertisers in the U.S. to upgrade to the new campaign-management application," Semel said during a conference call Tuesday.

He said Yahoo! has been introducing the new platform -- designed to generate more sales for advertised products and better revenue for Yahoo! -- to positive reviews.

"I also want to reaffirm that the introduction of the marketplace design in the U.S. remains on schedule for the first quarter of next year," he said of Panama.

Yahoo! posted a quarterly profit of $158.5 million, 38% less than in the same quarter a year ago though above the $156.6 million that analysts had expected. Revenue was up 19% to $1.58 billion. Excluding traffic-acquisition costs, or the portion that Yahoo! gives to its Web site partners, revenue was $1.12 billion, slightly missing analysts' expectations of $1.14 billion.

"I am not satisfied with our current financial performance," Semel said.

Excluding traffic-acquisitions costs, Yahoo! said its fourth-quarter revenue will range from $1.15 billion-$1.27 billion, below the $1.3 billion analysts had expected.

While Yahoo! shares took a dive early Tuesday on an analyst downgrade, they ended the regular trading session off 3 cents to $24.15. They advanced as much as 5% after the closing bell once investors decided that the assurance of a Panama roll out trumped the poor guidance.

Yahoo! shares had been going nowhere for several weeks because of warnings from upper management that the company was seeing weakness in ad sales from financial services and automobile companies, sectors that represent a hefty portion of Yahoo! ad revenue. The company's stock, down about 38% this year, also took a hit when Panama was delayed until next year.

In his downgrade early Tuesday, Cowen & Co. analyst Jim Friedland took Yahoo! stock from an "outperform" to a "neutral," citing advertising competition from a couple of media giants: News Corp. and its MySpace acquisition and Time Warner Inc.'s AOL.

"While we were initially concerned that online ad-market growth is slowing, checks with advertisers and publishers indicate that Yahoo!'s problems are unique to the company," Friedland said.

Semel and other top executives said Tuesday that the weakness primarily was the result of large advertisers having company-specific problems, and that they did not limit their remarks to only the auto and financial sectors.

Seemingly addressing criticism that Yahoo! hasn't been able to acquire a prime social networking company -- as News Corp. has with MySpace and Google Inc. is doing with YouTube -- Semel reminded analysts that Yahoo! already is No. 1 in that space, with 100 million combined users of Yahoo! Answers, Flickr, and Yahoo! Videos.

Yahoo!'s investments announced Tuesday were a purchase of AdInterax, a provider of rich-media advertising products, and a 20% stake in Right Media Inc., which auctions ads in real-time to the highest bidder. Financial terms of the two separate deals were not disclosed.

Yahoo! already was an investor in Right Media, having recently contributed to a $45 million financing round. Yahoo! said Tuesday that it will appoint a board member to Right Media and that it will join the Right Media Exchange so that advertisers can bid on Yahoo!'s nonpremium advertising inventory.