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Highlights from Yahoo’s 1Q07 Earnings Call April 18, 2007

Posted by David Card in Media.

Highlights from Yahoo’s Q1 earnings call yesterday. As usual, I’ll focus on industry rather than financial things. The slides are here.

Ad revenues (search and display) ex-TAC (that means, minus the revenue-sharing that Yahoo pays out to its search partners) were down 3% sequentially compared with Q4, and up 9% year over year, to $980M. Fees paid by consumers, small businesses, and broadband partners were down 5% from Q4 and up 5% from a year ago, to $203M. Yahoo stuck to its guidance for 2007 — execs think it will grow at the rate of online display growth: 14%, with growth accelerating through the year.

The new paid search ranking for Panama — Yahoo’s re-engineered search and ad-serving platform — is up and running in the US, and bits of it are being trial-tested in Japan. Performance is on schedule. Yahoo still hasn’t hired a new head for its Audience group (started looking mid-January). It all sounds like steady — if slow, oh, so slow — progress.

Big Picture

CEO Terry Semel is now describing Yahoo as a global advertising network. Where have we heard that recently? Just paint a bullseye on your forehead, Yahoo, and beg for Google comparisons. This is not a good messaging strategy, imo. Yahoo is still a media company with a richer collection of content, communications, and services — and thus a potentially richer advertising platform than everyone’s favorite search engine, DoubleClick or not. Somebody needs to work on Yahoo positioning.

On the positive side, Yahoo is justifiably psyched by its expanding newspaper classifieds (and content) network, a deepening relationship with eBay, and video distribution deals with all of the TV networks.

Advertising & Search

– Yahoo said ad sales on its own properties were up by a mid-teens percentage, but down at a similar rate on network sites. Yahoo blamed that on the continued transition away from the former MSN deal, increasing pay-out rates, and the fact it’s continuing to weed out crappy affiliates (who generate $$, but dilute the overall network).

– Yahoo said sales to its top 200 advertisers grew 20%. However, it admitted that that rate is down from the 25-30% growth rate in Q4, and an even higher rate last Q3. Yahoo said apples-to-apples inventory comparisons are up, but that even its top advertisers are spending money on remnant inventory at much lower prices. That is, pricing for premium inventory like section fronts, rich media, and video is robust, but social media and e-mail is cheap.

– Dollars per page view is down. See above. Yahoo says that remnant inventory is “nascent” in its ability to be targeted or “integrated with context.” It’s kind of embarrassing to admit that when you’re a portal that’s building out its ad platform, guys. Better work on that a little faster.

– Still claiming to be the leader in social media, especially for young-ish adults, by aggregating up all its pieces (Answers, Flickr, Groups). And finally — woo hoo! — attempting to monetize all that Answers traffic by serving up paid listings on Answers search results pages. Yahoo mentioned display ads and sponsorships for Answers, too, but no details.

– “We were pleased to see a diminshed RPS (revenue per search) decline in Q1.” Ugh. But the results ranking algorithm will start to reverse that, beginning now.

– No color on categories/industries. No exposure to sub-prime lenders, though.

– Panama will offer “quality-based pricing” and domain blocking in future releases.

– Google’s potential DoubleClick acquisition justifies Yahoo’s strategy. Welcome, Google; seriously, as someone once said.

Paid Content & Services

– 16.5M paid relationships. That’s up, even though Fantasy Football is over. No color on categories.

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