Yahoo Shares Decline After Second-Quarter Sales Miss Analysts' Estimates

Yahoo! Inc. slid the most in almost a year in Nasdaq trading after reporting second-quarter sales that missed analysts’ estimates, dragged down by a decline in online-search ad revenue.

Sales of $1.13 billion, excluding revenue passed on to partner sites, fell short of the $1.16 billion average of projections compiled by Bloomberg. Search-based advertising declined 8 percent, while display advertising, including banner ads, rose 19 percent, Yahoo said yesterday in a statement.

Yahoo, in the second year of a turnaround effort by Chief Executive Officer Carol Bartz, has lost ground in the Internet search market. That’s made it harder to tap one of the most profitable and fast-growing sources of online advertising. U.S. spending on search-based ads should climb 16 percent this year, while the online market overall will grow 11 percent, according to research firm EMarketer Inc. in New York.

“They continue to struggle,” said Clay Moran, an analyst at Benchmark Co. in Boca Raton, Florida, who rates the shares “hold” and doesn’t own any himself. “They really haven’t been able to get a handle on this search business and trying to turn it back to positive growth.”

Yahoo, based in Sunnyvale, California, fell $1.29, or 8.5 percent, to $13.91 at 4 p.m. New York time on the Nasdaq Stock Market. The stock has declined 17 percent this year.

‘Plenty of Work’

Search-ad sales didn’t meet expectations, Chief Financial Officer Tim Morse said in an interview. The company also experienced a “pullback” with large customers for display sales in June, though that has reversed this month, he said.

“Revenue fell a little bit short for us, so plenty of work still to do,” Morse said. Currency fluctuations also hurt sales, he said.

The company joins International Business Machines Corp. and Texas Instruments Inc. in missing sales estimates last quarter.

Yahoo forecast revenue of $1.57 billion to $1.65 billion for this quarter, compared with the $1.64 billion estimate of Aaron Kessler, an analyst at ThinkEquity LLC in San Francisco.

Last week, Google Inc., the leader in the Internet-search market, reported a 24 percent increase in second-quarter profit, which is derived mostly from online ads.

Yahoo is bringing new content to its site to attract visitors and keep pace with rivals. The company’s U.S. user base rose 10 percent in June from a year earlier, a smaller increase than Google’s 14 percent and Facebook’s 84 percent, according to ComScore Inc. in Reston, Virginia.

‘Just Not Happening’

Visitors are also spending less time on the site. They logged on for 2 hours and 11 minutes in June, down from 2 hours and 56 minutes in December, according to Nielsen Co. in New York.

“What they need are people staying up late, spending time on Yahoo,” said Heath Terry, an analyst at FBR Capital Markets Corp. in New York, who rates Yahoo shares “underperform.” “From all the numbers that we see, that’s just not happening.”

Second-quarter net income attributable to Yahoo rose to $213.3 million, or 15 cents a share, from $141.4 million, or 10 cents, a year earlier.

The company has struck deals with social-networking sites and invested in its own properties, using savings from budget- cutting efforts. Yahoo is offloading the costs of running a search engine by forming a 10-year agreement with Microsoft Corp. Yahoo will use Microsoft’s Bing search product on its sites and sell ads next to the results.

The search transition is progressing well, and the companies still aim to have it completed before the holiday shopping season, Bartz said on a conference call. Yahoo has begun testing the new search services, both for consumers and advertisers, she said.

Investors need to be patient for Yahoo’s strategies to pay off, said Sameet Sinha, an analyst at JMP Securities LLC in San Francisco, who recommends buying the shares and doesn’t own them.

“This is going to take time,” he said.

To contact the reporter on this story: Brian Womack in San Francisco at Bwomack1@bloomberg.net

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