Yahoo! Falls on Earnings Warning

Friday, January 12th 2001, 12:00 am

By: News On 6

SAN FRANCISCO (AP) â€” Shares of Yahoo! Inc. fell 15.2 percent Thursday following a warning that the slowing economy will cause earnings next year to fall short of analysts' expectations.

The company with the world's most popular Internet site said Wednesday that fourth-quarter operating earnings rose 44 percent and matched Wall Street expectations. But Yahoo also sharply lowered its forecasts, saying the slowing economy will hurt its income from advertising.

Even though Yahoo plans to increase sales of ads and services to large companies, introduce new fee-based subscription services and reduce its reliance on ads from dot-coms, that will not be enough to avert a downturn.

``Over the next year, we expect to see some short-term effects from the apparent softening economy and the continued realignment of our client base,'' CEO Tim Koogle said.

Investors sent Yahoo's shares down $4.63 to close at $25.88 Thursday on the Nasdaq Stock Market.

Yahoo posted a net loss of $97.8 million, or 17 cents per share, for the three months ended Dec. 31, compared with a gain of $37.8 million, or 6 cents per share, in the year-ago period.

But excluding investments, acquisition-related charges and other items, Yahoo earned $80.2 million, or 13 cents per share, in the fourth quarter. That was up from comparable results of $55.7 million, or 9 cents per share, in the same period of 1999.

The results matched expectations of analysts surveyed by First Call/Thomson Financial and gave Yahoo reason to boast that its brand was actually strengthened while other Internet companies suffered in 2000.

``By almost any measure Yahoo continued to outperform the industry, and took market share despite a challenging environment,'' Koogle said.

But in this quarter, Yahoo expects earnings of 4 cents to 7 cents per share, well below analysts' expectations of 13 cents per share. For all of 2001, Yahoo forecasts earnings between 33 and 43 cents per share, far below current predictions of 57 cents and this year's figure of 48 cents.

Even the surprisingly low forecasts could be a challenge to reach, said Andrea Rice, managing director at Deutsche Bank Alex. Brown in San Francisco.

``There's a lot of things that need to happen for them to hit the revenue numbers they're talking about in '01,'' she said. ``There's a lot of different battles they'll be fighting over the course of this year.''

After starting as a search engine in the mid-1990s, Yahoo grew into a full-service information and shopping portal.

Santa Clara-based Yahoo gets about 90 percent of its revenue from advertising, an increasingly risky model as dot-coms and other high-tech companies have slammed the brakes on their spending.

Yahoo executives said they were reducing ad revenue to about 80 percent of the total and increasing sales to more reliable, traditional companies. Yahoo said it has 3,700 advertisers, up from 3,450 in the third quarter, and counts 55 of the Fortune 100 businesses as advertisers.

Executives also said the company would make a point of ``turning users into members,'' starting new subscription-based services in the areas of personal finance, digital entertainment and shopping. In an interview, Koogle cited online payment and data storage as examples of services Yahoo can charge for.

Yahoo also began charging fees Wednesday to people who use the site to list items for auction. The fees range from 20 cents to $1.50 â€” lower than the 25 cents to $2 charged by rival eBay Inc. Yahoo still will not charge commissions on the auctions, which eBay and Amazon.com do.

Analysts have applauded other recent moves to new revenue sources, such as customizing its Web sites for internal corporate networks. Yahoo said this week it has lined up 18 customers for the high-margin sites, including McDonald's Corp. and the German pharmaceutical giant Bayer AG.

Such improvements would be nothing compared to what many analysts believe is Yahoo's best long-term bet: a merger with a mammoth media company. Walt Disney Co., News Corp. and Viacom Inc. all have been suggested as potential mates for Yahoo, which will face stiff competition from the new America Online-Time Warner behemoth.

``Clearly the potential benefits of having a real content partner are immediately recognizable, and management cannot ignore that opportunity forever,'' said Fred Moran, head of Internet research at Jefferies & Co. in New York.

Though Koogle would not directly say whether Yahoo is considering a major media merger, he indicated to The Associated Press that he opposes the idea.

``We really believe it becomes more difficult to carry a broad range of content if you take the step of vertically integrating,'' he said. And reducing Yahoo's diversity of material ``runs counter to what we hear from consumers worldwide,'' he said.

For all of 2000, Yahoo earned $291 million, or 48 cents per share, on revenues of $1.1 billion. The previous year, profits were $138 million, or 23 cents per share, on $591.8 million in revenue.

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On the Net:

http://www.yahoo.com