Yahoo profit drops 61 percent

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SAN FRANCISCO – Internet bellwether Yahoo Inc. reported late Tuesday a fourth-quarter profit plunged 61 percent, hurt by higher costs for employee stock options and slowing sales growth as it faces stiffer competition in the online ad market from Google Inc.

Yahoo said net income for the period ended Dec. 31 fell to $269 million, or 19 cents a share, from $683 million, or 46 cents, a year earlier. Excluding one-time items, the company said it would have earned 21 cents a share.

Analysts surveyed by Thomson First Call expected Yahoo to report earnings of 13 cents a share.

Sales for the period rose 13 percent to $1.7 billion on stronger demand for the company’s display ads, a market it still leads. Excluding what it pays its partners to refer Internet traffic, sales rose 15 percent to $1.23 billion, slightly more than analysts were expecting and in line with Yahoo’s own forecast.

Sales growth was the lowest reported by the company in several years. The company also issued a sales forecast range for the current quarter and 2007 that lagged Wall Street expectations, and Yahoo shares slipped in after-hours trading.

The report caps a tumultuous quarter for Yahoo. In December, Chief Executive Terry Semel reorganized the company several weeks after a senior Yahoo executive penned the so-called “Peanut Butter Manifesto,” which called for a broad shake-up at the company.

The restructuring saw the departure of Chief Operating Officer Dan Rosenswieg and Lloyd Braun, a former Hollywood pal of Semel’s who had headed Yahoo’s sputtering media group.

Semel made the moves to streamline Yahoo’s unwieldy corporate structure. Susan Decker, who has served as chief financial officer since 2000, was tapped to head one of three new divisions. A technology group, led by Chief Technology Officer Farzad Nazem, will continue to support operations.

Yahoo also saw its No. 1 ranking as the most popular Internet site overtaken by MySpace, the social networking Web site owned by News Corp.

Still, Yahoo managed to keep pace with rival Google’s surging share of the Internet search market, while other search engines dropped off, according to the latest report from market researcher Neilsen/Net Ratings.

Yahoo also unleashed the first phase of Project Panama, its oft-delayed new advertising feature meant to drive more business its way.

In a note to clients Tuesday, about half of those responding to a William Blair & Co. survey said they intended to boost their spending at Yahoo because of the ad upgrade.



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AP-NY-01-23-07 2048EST

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