- The Washington Times - Tuesday, January 17, 2006

SAN FRANCISCO (AP) — Yahoo Inc.’s fourth-quarter profit nearly doubled as advertisers continued to shift spending to the Internet, but it wasn’t enough to live up to the lofty expectations for the Web’s most heavily trafficked destination.

The Sunnyvale, Calif., company said it earned $683.2 million (46 cents per share) during the three months ended in December. That represented an 83 percent increase from net income of $372.5 million (25 cents) a year earlier.

The 2005 results included a $310 million gain triggered by a complex deal that left Yahoo with a 40 percent stake in Alibaba.com, China’s largest e-commerce company.

If not for that gain and other accounting items unrelated to its ongoing operations, Yahoo said it would have earned 16 cents per share.

Revenue for the quarter totaled $1.5 billion, a 39 percent increase from $1.08 billion a year earlier.

After subtracting the advertising commissions that Yahoo paid to other Web sites, the company’s fourth-quarter revenue stood at $1.07 billion, in line with analyst estimates.

Because Yahoo is the first major Internet company to disclose how it fared during 2005’s final quarter, its fourth-quarter report has become a focal point for investors trying to figure out just how much more advertising migrated online during the busy holiday shopping season.

This marks the second consecutive quarter that Yahoo has reported robust financial growth only to have investors punish its stock. The pattern reflects the high hopes attached to Yahoo’s stock as investors bet on the company’s ability to cash in on the Internet advertising boom.

Although Yahoo’s profits have been steadily rising in recent years, the company still hasn’t been able to come up with a formula that is as effective at serving up moneymaking ads as its biggest rival, online search engine leader Google Inc.

Both Yahoo and Google display text-based ads on hundreds of Web sites in addition to their own, but only get paid when the links are clicked on.

Google’s knack for enticing clicks has generated a long stretch of stellar earnings growth that have outstripped Yahoo’s. As a result, Google is currently worth twice as much as Yahoo, even though it is a younger company.

Google’s market value already has climbed nearly 13 percent in anticipation that its profit will top analyst expectations when it reports its fourth-quarter results Jan. 31.

Yahoo Chairman Terry Semel has been promising to introduce improved advertising algorithms later this year, a pledge he reiterated during a conference call with analysts yesterday.

That initiative will become even more important later this year when Yahoo will lose one of its biggest advertising partners, Microsoft Corp., which plans to start its own network this summer.

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