Yahoo Earnings Report Illicits Mixed Reactions

Brandweek, Oct 16, 2000 by Sarah J. Heim

When a global Internet giant like Santa Clara, Calif.-based Yahoo Inc. announces its quarterly earnings, it isn't just stockholders who take notice. Indeed, after Yahoo's third quarter sales and earnings--which slightly surpassed most industry forecasts--were publicly announced last Tuesday, media gurus around the world chimed in on what these new numbers mean.

Nowhere is this numbers crunching better evidenced than in the sector of online advertising. Yahoo's announced third quarter earnings of $81.1 million, or 13 cents per diluted share on a pro forma basis, is up $42.6 million, or 7 cents per share from the same period last year. Those numbers reemphasized that established Internet powerhouses can continue to show signs of growth, albeit cautious growth.

According to Marissa Gluck, an analyst at New York-based Jupiter Research, the earnings report also indicates moderate growth of online advertising ia general. "Online advertising isn't going to disappear," she said. "It's going to continue to grow."

By 2005, Jupiter forecasts that online ad spending will reach $16.5 billion, accounting for 7.5 percent of the U.S. advertising market, up from 2 percent at year-end 1999. Similarly, online ad revenue is expected to grow at a compound annual growth rate of 30 percent by 2005.

Gluck predicts that large top-tier Internet media sites like Yahoo and AOL will continue to have strong advertising revenue in the coming years. Because of their need to reach a large audience and target users, advertisers will be drawn to the advertising offerings of large Internet companies. Also, Gluck believes that online advertising will continue to grow because more people are coming online and taking the Internet seriously as a medium.

However, she also pointed out that while Yahoo is an important player in the Internet space, "they are not the beginning and end of online advertising." Affinity sites such as ESPN.com, iVillage.com and BET.com are also likely to see continued increases ia advertising revenue. "Sites like these will persevere because of their ability to reach a targeted market," Gluck said.

Internet sites that will face the most pressure in coming months are those in the second tier, such as portals Lycos, Excite and About.com, Gluck predicted. Already, second-tier AltaVista has stopped offering online advertising. So while Yahoo's quarterly announcement may be a bellwether for other comparable top-tier sites, its financial successes--particularly in the realm of online advertising--do not necessarily ring true for every other dot-com.

It only goes to show that ia the growing world of Internet consolidation, all sites must look to diversify their revenue streams, Gluck said. "You can't put all your eggs in one basket."

However, even though the overheated flurry of online advertising spending may be over for good, Gluck emphasized that there is still the opportunity for efficient, quantifiable advertising to take place on the Web. And, as Web site consolidation continues, it is likely that more traditional advertisers will jump on board as the fly-by-night dot-commers continue to drop off the screen.