A Tale of Two Earnings Releases

Yesterday while I was on a plane flying back to the Bay Area, Yahoo! released its earnings. Gross and net revenues were up, net profits were down vs. Q2 last year. Here are the numbers in detail from the earnings release. And here’s the conference call transcript. Here’s another summary of the numbers from the WSJ (sub. req’d)

The stock fell to a 52 week low in after-hours trading, despite strong growth in display advertising and numbers that basically met financial analysts’ estimates.

The big news, and arguably the primary reason the stock took a dive, was the announced delay in the roll-out of Panama, Yahoo!’s new much-anticipated ad platform. The Wall Street expectation had been that it would be introduced in Q4. But early speculation among search marketers in several discussion groups was that it effectively wouldn’t be introduced until Q1. The announced reason was “more testing.”

Yahoo! needs to get it right since much is riding on the improved performance of the platform, which according to some estimates, produces 40% less revenue per click than Google’s.

Wall Street is all about the short term and the expectations game. Yahoo! remains the number 1 site in terms of uniques online and has a range of powerful assets. Though Google is indisputably dominant in search, Google does not have the kind of display assets that Yahoo! does. It also doesn’t have the content assets. And Yahoo! has the dominant online email application. But somewhat myopically search and paid-search is what The Street is heavily focused on.

Here’s the 2005 breakdown of the dominant categories of US online ad spending (per IAB/PWC):

  • Paid search: $5.1 billion (41%)
  • Display advertising (incl. video): $4.3 billion (34%)
  • Classifieds revenue: $2.1 billion (17%)

Yahoo! for the foreseeable future will continue to be the “go to” site for brand advertisers and will continue to capture SEM dollars. For the time being the “quality” search traffic is on Google and Yahoo! (MSN would argue it has its share too). So search marketers seeking quality ad inventory will keep spending money on Yahoo! There just aren’t many other places to go. (The SEM market is somewhat schizophrenic; it wants both more competition and more standardization/efficiency.)

At issue then is the efficiency of Yahoo!’s RPS (revenue per search). That’s what’s at stake with Panama. The Street demands an aggressive growth story from the Internet bellwethers and punishes them if expectations aren’t met.

NY Times Reports Earnings

Across the country, in the realm of “old media,” the NY Times also reported earnings yesterday, overshadowed by Yahoo!.

Basically the Times reported flat earnings on the print side. There were a couple of modest gains in ad revenue and circulation at the Times, while the Boston Globe’s ad and circulation revenues were down. Here’s the Times’ own article (reg. req’d) and earnings release:

Total revenues rose 1.6 percent to $858.7 million compared with $845.1 million. Advertising revenues grew 1.0 percent, circulation revenues were up 0.6 percent and other revenues increased 12.6 percent.

The Internet, however, continues to be the growth engine for the business. From the article:

Internet revenue continues to increase and now accounts for 7.7 percent of total revenue, up from 5.8 percent in the second quarter of last year. The Internet-related businesses generated $66.1 million in revenue, up from $49 million.

Ad ‘Purgatory’

So we’ve entered in an interesting sort of advertising “purgatory.” Traditional media are seeing healthy growth online, but not enough revenues to offset potential declines in traditional products. And the few dominant online media sites (Google, Yahoo!, MSN, NY Times, etc.) don’t offer enough quality ad inventory for advertisers to entirely shift or replace their offline spends.

It’s likely to be this way for quite some time.

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Related: The NY Times announced that it would shrink its format (to save costs) and cut jobs.


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