Yahoo cautioned that 2006 revenue could grow at a slower-than-expected pace and delayed the launch of an upgraded search advertising system, sending its shares down 13 percent on Tuesday.
SAN FRANCISCO (Reuters)—Yahoo Inc. on Tuesday cautioned that 2006 revenue could grow at a slower-than-expected pace and delayed the launch of an upgraded search advertising system, sending its shares down 13 percent.
The disappointing forecast from the world's largest Internet media company weighed on leading online stocks in post-market trade, with Google Inc., eBay Inc. and China's Baidu Inc. all down 3 percent.
Yahoo also reaffirmed a net revenue forecast of $4.60 billion to $4.85 billion this year, while Wall Street was looking for revenue of $4.69 billion to $4.90 billion, according to Reuters Estimates.
Chairman and Chief Executive Terry Semel said Yahoo would delay introducing a much-anticipated upgrade of its Web search ad system until the fourth quarter, a quarter later than it had previously expected.
He said the company had made "strong progress" on the upgrade in recent months, but that quality assurance issues had led it to postpone introducing the system to customers.
Semel warned Wall Street analysts not to anticipate much financial impact from the new system until the first quarter.
The forecasts came as Yahoo reported second-quarter profit that was in line with market expectations, while revenue was slightly below forecasts according to Reuters Estimates.
"It looks like a miss-and-lower quarter," said Tim Boyd, an analyst at Caris & Co.
For the third quarter, Yahoo forecast revenue of $1.12 billion to $1.23 billion. Analysts had expected $1.15 billion to $1.24 billion.
Yahoo Chief Financial Officer Sue Decker said there would be "a slight tailwind" from foreign currency translation effects in the second half of 2006, due to the weaker dollar.
Yahoo competes in both the image-based, brand advertising market, where it is the leader, and in the Web search market, where it is a distant second to Google.
Yahoo said second-quarter net income fell by 78 percent to $164 million, or 11 cents per diluted share, from $754.7 million, or 51 cents per share, in the year-earlier quarter.
The year-earlier quarter included an after-tax investment gain of $552 million tied to the sale of shares from an early investment in Google and settlement of a Yahoo lawsuit over Google's use of its search technology.
Net revenue rose 28 percent to $1.12 billion, excluding the cost of acquiring advertising customers. Wall Street was looking for $1.14 billion on average, in a range of $1.11 billion to $1.17 billion, according to Reuters Estimates.
Marketing services revenue from image-based brand advertising and Web search grew 27 percent to $1.39 billion. Fee-based revenue from broadband services and other businesses grew 19 percent to $190 million.
"It is interesting because brand advertising was very strong, but search was very weak," said Safa Rashtchy, an analyst at Piper Jaffray & Co. The "early indication is that Google's getting more search market share, but bear in mind Q2 is not as busy for search. But even adjusting for that, we expected better."
The Sunnyvale, California-based company said traffic acquisition costs, or the cut of gross revenue Yahoo pays out to affiliated Web sites to drive traffic through its search system, amounted to $453.2 million.
U.S. gross revenue grew 23 percent to $1.07 billion. International revenue rose 32 percent to $506 million.
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