Yahoo Inc Chief Executive Terry Semel is trying to boost the most-used Internet search service by wooing the biggest advertisers when they're cutting spending after the Sept. 11 terrorist attacks.
Semel, named CEO six months ago, had been building a sales team to persuade advertisers such as Sony Corp and PepsiCo Inc to use Yahoo's sites, replacing Internet companies that promoted their services on the Web until they ran out of cash. Semel also is starting subscription services for music, news and other features to reduce the company's reliance on advertising.
He faced skepticism among some shareholders even before the attacks because a weaker US economy, which in the second quarter expanded at the slowest rate in eight years, was driving down ad spending. Now, the doubts have been magnified.
"I think people are looking for him to change course significantly," said Paul Cook, a fund manger at Munder Capital Management, which holds Yahoo shares.
Yahoo had a third-quarter loss of US$24.1 million, or US$0.04 a share, compared with income of US$47.7 million, or US$0.08, a year earlier, the company said. The company has posted four consecutive quarterly losses. Yahoo shares had plunged 88 percent in the past year.
Jefferies & Co analyst Fred Moran cut his estimate of Yahoo's earnings this year to US$0.03 a share from US$0.05, a week after the attacks. The estimate excludes acquisition-related costs, payroll taxes on employees' stock options gains and some other expenses.
"You had an already fragile economy and then you get another piece of horrific news," said Derek Brown, an analyst at WR Hambrecht & Co. "It may have frozen the activities of marketers."
Some investors and analysts said Semel hasn't moved fast enough to make Yahoo less dependent on advertising and they're skeptical that he can. Advertising accounted for 82 percent of second-quarter revenue, down from 83 percent in the first quarter, the company told the Securities and Exchange Commission.
"I'll believe it when I can see it," said David Zale, an analyst at Sands Brother & Co, said of Semel's assertions that he'll boost revenue from sources other than ads. Zale rates Yahoo shares "sell."
Semel replaced Tim Koogle in April after the company posted a first-quarter loss of US$11.5 million and a 22 percent drop in sales. At an investor conference in New York last week, Semel said it's too early to project possible effects on sales for the Web sites viewed by more than 200 million customers each month. Ad purchases slowed after the attacks, he said.
Revenue in the third quarter fell 44 percent to US$166.1 million from US$295.5 million. The company said last month that it expected to report revenue of US$160 million to US$180 million.
Profit before acquisition-related costs, amortization, payroll taxes on employee stock-option gains and other expenses would have been US$8.4 million, or US$0.01 a share. That compares with a profit of US$81.1 million, or US$0.13 a share, a year earlier.
Yahoo said it expects fourth-quarter revenue of US$160 million to US$180 million, less than the average estimate of US$191.8 million of analysts polled by Thomson Financial/First Call.
"The fundamental outlook for the company remains the same," Zale said. "It still stinks." Advertising sales in all media, including television and newspapers, had been declining before the attacks. Investment bank Veronis, Suhler & Associates said in August that US advertising sales would decline 1.1 percent this year.
In the second quarter, Yahoo had a US$48.5 million loss as sales fell 33 percent.
Yahoo lost advertisers as hundreds of Internet companies ran short of cash or shut down during the past year. When Internet companies sold shares to the public and raised cash, in late 1999, many were eager to buy ads, Semel said. "Picture fish jumping into the boat," he said.
Semel, 58, has hired ad sales people "who came from the world of dealing with large advertisers and ad agencies" and will help Yahoo take a larger share of the online ad market when the economy recovers, he said.
Sony, in July, signed a multiyear agreement to advertise its movies, music and consumer-electronics products on Yahoo's sites.
Yahoo promotes Pepsi with its Pepsistuff.com Web site. In March, Yahoo broadcast the premier, streamed over the Internet, of a Pepsi commercial with singer Britney Spears. Semel also is trying to develop new sources of revenue to make Yahoo less dependent on advertising.
Yahoo bought Launch Media Inc, operator of a Web site focused on music, for US$12 million in August. The company may help Yahoo build an online music-sales business.
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