Yahoo Misses Estimates After Users Flock to Google, Facebook

Yahoo! Inc., the most-visited U.S. Web portal, predicted sales that fell short of analysts’ estimates after Internet users and advertisers shifted to social-networking sites and Google Inc.

Excluding revenue passed on to partner sites, fourth- quarter sales will be $1.13 billion to $1.23 billion, Sunnyvale, California-based Yahoo said today in a statement. Analysts had estimated $1.25 billion on average, according to data compiled by Bloomberg.

Chief Executive Officer Carol Bartz, who began leading a turnaround effort in January 2009, has failed to gain market share from Google and now faces rising competition from Facebook Inc. and other social-networking sites. U.S. online users spent 9.5 percent of their time on Yahoo in September, down from 13.8 percent two years earlier, according to ComScore Inc.

“The company’s still under a fair amount of pressure,” Colin Gillis, an analyst at BGC Partners LP in New York who has a hold rating on the shares. The company uses ad formats that are less popular among advertisers, and it lacks social- networking features, he said. “Yahoo still looks like a 1.0 property in a 2.0 world.”

Yahoo was little changed in late trading after the announcement. Earlier today, the shares fell 44 cents to $15.49 on the Nasdaq Stock Market. The stock jumped 12 percent last week, spurred by renewed buyout speculation.

Takeover Talk

Yahoo, which spurned an acquisition bid from Microsoft Corp. in 2008, is working with Goldman Sachs Group Inc. to help defend against possible takeover approaches, said three people familiar with the matter last week. AOL Inc. has talked with private-equity companies, including Silver Lake, about a possible bid, two people familiar with the matter said.

Discussions between AOL and the private-equity firms are preliminary and have focused on a possible purchase of parts of Yahoo, two of the people said. Neither AOL nor the private- equity firms have made a proposal to Yahoo, the people said.

“They’re not benefiting like Google is from being a global company,” said Jason Helfstein, an analyst at New York-based Oppenheimer & Co. who rates Yahoo’s stock “perform” and doesn’t own it. “I think the stock is trading on: ‘Does something happen with the company?’”

‘A Lot More Work’

When asked during a conference call whether she might consider an offer from a private-equity firm, Bartz declined to comment. She said the company is focused on increasing its revenue and expanding profitability, and the quarter shows that Yahoo is on the right track.

“Yahoo is a company with tremendous potential,” she said. “We have a lot more work to do in the months ahead, but we’re clearly making progress. And the payoff, I believe, in return to our shareholders will be substantial.”

Net income attributable to the company more than doubled to $396.1 million, or 29 cents a share, from $186.1 million, or 13 cents, a year earlier. Yahoo gained 13 cents from the sale of its HotJobs site and had a 4-cent benefit a year earlier from an investment in Alibaba.com. Analysts had estimated 15 cents on average.

Excluding revenue passed on to partner sites, Yahoo had third-quarter sales of $1.12 billion, missing the $1.13 billion predicted by analysts.

Google, Facebook

“Google and Facebook are fighting very vigorously for share of wallet from the brand dollars migrating online,” said Sandeep Aggarwal, an analyst at Caris & Co. in San Francisco who recommends buying Yahoo shares. “For the last 12 years, we saw Yahoo being the biggest beneficiary of brand dollars coming on the Internet, but now you have Google and Facebook also trying to claim those dollars.”

While more Internet users are getting their news and information from social-networking sites, Yahoo remains the most popular U.S. Web portal, according to Reston, Virginia-based ComScore.

Yahoo has been trying to take advantage of the social- networking trend by forming partnerships with other sites. Users can now see their Facebook updates without leaving the home page of Yahoo. In September, the company announced plans to integrate its website with Twitter Inc.’s service. And earlier this year, Yahoo forged a deal with Zynga Game Network Inc. to let applications such as “FarmVille” and “Mafia Wars” run on Yahoo’s sites.

Microsoft Pact

Bartz also has closed poor-performing websites and farmed out Yahoo’s Internet search business to Microsoft. The companies’ 10-year agreement puts Microsoft’s Bing search engine on Yahoo, creating a bigger competitor to Google.

For now, Google has maintained its dominance. Its share of U.S. searches climbed to 66.1 percent last month, from 65.4 percent in August, according to ComScore. Yahoo fell to 16.7 percent from 17.4 percent, while third-place Microsoft rose to 11.2 percent from 11.1 percent.

Yahoo’s display ads, such as banners and videos, jumped 17 percent last quarter. Still, that’s a slowdown from the second quarter, when display ads climbed 19 percent. Internet-search revenue on its sites declined 7 percent in the third quarter from the year-earlier period.

The company also has stepped up stock buybacks. Yahoo has repurchased more than 7 percent of its shares this year.

“We’re making progress,” Yahoo Chief Financial Officer Tim Morse said in an interview. “We’re very happy with the strategy, and we’re focused on executing.”

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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