Yahoo Shares Take Hit on 11% Q1 Profit Drop

Yahoo shares slid 8.2% to $29.51 in AH trading last night after the company reported an 11% drop in Q1 profit. Q1 net income fell to $142 million ($0.10/share) from $159.9 million ($0.11) a year ago, just shy of Street expectations of $0.11. Q1 sales were up 7% to $1.67 billion on higher demand for Yahoo's graphical display and text-only search ads. That rise compares with 13% in Q4, 19% in Q3 and 26% in Q2 from the year-earlier periods. Excluding fees, sales came in at $1.18 billion, up 9% from last year but less than analysts' forecast of $1.21 billion. Yahoo's new Panama ad technology boosted sales, but they were undercut by operating expenses that rose to $789.2 million (47% of sales) from $707.9 million (45%) last year. Profits were also hit by a 7% drop in revenue generated by searches on Yahoo's engine. CFO Sue Decker expects growth to accelerate on the international rollout of Panama and on Yahoo's new mobile services, but the company is maintaining its 2007 revenue forecast of $4.95-5.45 billion. Yahoo announced on the earnings call that as of yesterday, eBay's PayPal shopping cart icon will appear on Yahoo search results beside sites that accept PayPal's Express Checkout.

Sources: Conference call transcripts: Q1 2007, MarketWatch (I, II, III, IV ), Wall Street Journal, New York Times, Bloomberg
Commentary: Yahoo: Still a Solid Turnaround Story Despite Dissatisfactory Results • Heading Into Internet Sector Earnings: Buy Yahoo, Hold eBay, Sell Google? • Yahoo: Estimates Up On Success Of Panama
Stocks/ETFs to watch: Yahoo! Inc. (YHOO), eBay Inc. (EBAY). Competitors: Google Inc. (GOOG). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN), Morgan Stanley Technology ETF (MTK)

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