Colin Gillis Comments : Yahoo! Sales Top Estimates as Online Ad Spending Rises-Bloomberg

 Yahoo! Inc., owner of the second- most-used Internet search engine in the U.S., reported fourth- quarter sales that topped analysts’ estimates as the online advertising market showed signs of recovery.

Excluding revenue passed on to partner sites, sales totaled $1.26 billion, above the average estimate of $1.23 billion in a Bloomberg survey of analysts. Net income attributable to Yahoo was $153 million, or 11 cents a share, compared with a loss of $303.4 million, or 22 cents, a year earlier, the company said today in a statement.

After cutting costs last year, Yahoo is benefiting from a surge in online spending. Companies are pushing harder to get ad space on Yahoo pages, boosting the price it can charge, said Colin Gillis, an analyst with BGC Financial LP in New York.

Yahoo “stopped the pricing erosion,” said Gillis, who rates the stock a “buy.” “It’s better to have buyers who are lined up and cancel than not to have anybody.”

The Sunnyvale, California-based company forecast gross sales of $1.58 billion to $1.68 billion in the current quarter. That compares with an estimate of $1.55 billion by Gene Munster, an analyst at Piper Jaffray & Co. in Minneapolis. The U.S. online display ad market will rebound this year, growing 10 percent after a decline of 2 percent in 2009, he said in a research note.

Display Advertising

“While competition is increasing for display dollars from social networks and targeted portals, we believe Yahoo remains a major element to most online media plans, given the site’s market leading reach,” he said.

Yahoo shares rose 50 cents to $16.49 in extended trading after increasing 13 cents to $15.99 on the Nasdaq Stock Market. The shares climbed 38 percent last year.

Aaron Kessler, an analyst with Kaufman Brothers LP, said the company did well in display ad sales though failed to keep pace with Google Inc. in search ads.

“It was a mixed quarter,” said Kessler, who has a “buy” rating on the stock and doesn’t own it. “There’s nothing to get too excited about.”

Excluding some expenses, profit was 15 cents a share. Analysts had predicted 17 cents, according to the Bloomberg survey. Analysts surveyed by First Call had estimated earnings per share, under generally accepted accounting principles, of 11 cents, according to a Jan. 26 note from Deutsche Bank AG.

‘Solid Quarter’

“We had a very solid quarter of results,” Chief Financial Officer Tim Morse said in an interview. “We definitely feel the business is gaining momentum.”

Chief Executive Officer Carol Bartz said on a conference call with analysts that her first year on the job had been a “wonderful ride,” though a “very bumpy” one, as she restructured the company for growth in a difficult economy. She said the online ad business appears to be returning to normal.

“We’re just getting started,” Bartz said on the call. “We’re feeling good heading into 2010.”

Under Bartz, Yahoo has buoyed its profit by cutting costs, including closing underperforming businesses and reducing staff. Last year, the company shut the Web-hosting unit GeoCities and an online storage site called Briefcase.

Earlier this month, Yahoo said it would sell its Zimbra e-mail and collaboration software to VMware Inc. for an undisclosed price. The companies expect to complete the sale this quarter. Yahoo bought Zimbra in 2007 for $350 million.

Cost Cutting

Yahoo also is looking to reduce costs associated with its search business, such as engineering. Yahoo struck a deal with Microsoft Corp. that’s expected to close early this year. Under the partnership, Yahoo will put Microsoft’s Bing search engine on its Web sites, and the two companies will split the related advertising revenue.

The partnership may help both companies compete better with Google, which claimed 65.7 percent of Internet searches in the U.S. last month, according to ComScore Inc. in Reston, Virginia.

Microsoft’s market share increased to 10.7 percent last month from 8 percent in May, before the June debut of Bing. Yahoo’s share declined to 17.3 percent from 20.1 percent over the same period.

The pending partnership has hampered Yahoo’s ability to compete in the search market, said Scott Kessler, an equity analyst at Standard & Poor’s in New York. Once the deal is completed, Yahoo can design the search feature that users see on its pages, he said.

“They can’t really do the kind of implementations and improvements they want to do until things have changed over,” he said.

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