Yahoo Revenue Rises But Profits FallYahoo Revenue Rises But Profits Fall

Yahoo on Tuesday delivered slightly better-than-expected revenue, but its profit was hurt by the cost of employee stock options and delays in the company's new online ad platform.

The company reported revenue of $1.7 billion for the fourth quarter of 2006, an increase of 13% from $1.5 billion in the fourth quarter of 2005.

Revenue excluding traffic acquisition costs -- the amount of money Yahoo shares with advertising partners -- was $1.23 billion during the quarter.

Yahoo's guidance to investors predicted revenue of between $1.15 billion and $1.27 billion.

Yahoo reported $269 million net income, down from $683 million during the same period in 4Q 2005 and $373 million in 4Q 2004.

"I am pleased with the progress Yahoo made in the fourth quarter," said Terry Semel, chairman and CEO of Yahoo, in a statement. "We successfully addressed many of the challenges we faced in the third quarter and made aggressive moves to deliver on a number of strategic goals that we set forth for the organization. I am confident that our new structure and concentrated focus on Yahoo's key priorities puts us in the best position to take advantage of the many opportunities that we see ahead for 2007 and beyond."

Yahoo reported $6.4 billion annual revenue in 2006, an increase of 22% from $5.26 billion in 2005.

On a conference call for investors, Semel said that Yahoo was "aggressively executing" on its plan to improve its performance and address the company's challenges and opportunities.

Semel said that advertiser reaction to the company's new "Project Panama" ad platform was overwhelmingly positive and that the company expected that all of its U.S. advertisers to have made the transition to the new platform by the end of the current quarter. He also said the company's new ad ranking model, which will consider ad performance in addition to keyword bid price in determining ad placement, will debut Feb. 5.

Google's AdWords already does this, which is one of the reasons Google has dragged Yahoo in an online advertising dogfight.

Semel said Yahoo expects to roll out its new ad platform internationally starting in the second quarter, beginning with Japan, and continuing for the remainder of the year.

Yahoo should see the revenue impact of "Project Panama" starting in the second quarter, Semel said.

"As I look ahead to 2007 and beyond, I believe that the future opportunity for Yahoo, and the industry as a whole, is bigger than ever," Semel said.