Online ads are reason to 'Yahoo!'

SAN FRANCISCO — Yahoo! Inc. rode a rising wave of online advertising to a 62 percent increase in its fourth-quarter profit, continuing the Internet powerhouse's robust recovery from the dot-com downturn.

The company, based in Sunnyvale, Calif., said Wednesday that it earned $75 million, or 11 cents per share, during the final three months of 2003. That compared with net income of $46.2 million, or 8 cents per share, at the same time in 2002.

Revenue more than doubled in the fourth quarter to $664 million, up from $286 million at the same time last year. Online advertising accounted for 82 percent, or $545 million, of Yahoo's fourth-quarter revenue.

The earnings matched the mean estimate among analysts surveyed by Thomson First Call.

But investors appeared to be counting on Yahoo to exceed analyst expectations, something the company has been doing regularly over the past year.

Yahoo's shares fell 41 cents to close at $48.39 on the Nasdaq Stock Market before the earnings release, then shed $1.84 in extended trading.

It marked the seventh consecutive quarter that Yahoo's results have improved from the previous year, reflecting the strides that the company has made since it suffered a $92.8 million loss in 2001 and laid off hundreds of workers.

"We are really excited by all the progress we have made, but I think we have so many more opportunities ahead of us," Yahoo Chairman Terry Semel said during an interview Wednesday.

Emboldened by its recent success, Yahoo is poised to cut its ties with a formidable ally that it now views as a rival, online search engine leader Google Inc.

Yahoo has been drawing on Google for some of its algorithmic search results since June 2000, but Semel said Wednesday that relationship will end within the next 2 1/2 months. When that happens, Yahoo's search engine will be driven by Inktomi, which the company acquired last year for $280 million.

The decision to drop Google illustrates how valuable Yahoo's search engine has become to the company.

Yahoo's fourth-quarter revenue gains flowed largely from its $1.8 billion acquisition of Overture Services Inc., a deal that closed in early October.

Overture operates a commercial database that delivers relevant ads to search engines. The service has become one of the most popular advertising vehicles on the Internet, providing an additional boost to Yahoo's fortunes.

The advantages of owning Overture "are even more compelling than we initially thought," Susan Decker, Yahoo's chief financial officer, told analysts during a conference call.

The quarter capped Yahoo's most profitable year since Stanford University students Jerry Yang and David Filo founded the company nearly 10 years ago as an online directory.

In 2003, Yahoo earned $237.9 million, or 37 cents per share, on revenue of $1.6 billion, up from net income of $42.8 million, or 7 cents per share, on revenue of $953 million in 2002.