Yahoo! Earnings Weak but Panama is Coming

Yahoo! reported fourth quarter earnings last night that have been considered weak by the street but the stock (YHOO) is up on the announcement that Panama will be released ahead of schedule. Yahoo! started converting accounts to the new Panama system late last year. The current system is pretty simple. Yahoo! ranks ads based on the bid price (bid-to-position).

Beginning February 5, 2007 in the U.S., the new Panama will work just like Google AdWords. Bid Amount and Ad Quality will Determine an Ad’s Rank in Search Results. This is expected to drive up the monetization rates for Yahoo! and we think it will. There are a couple of reasons for this. First, by using CPC bid and Quality(CTR) they will automatically maximize their revenue and improve the quality of the ads they visitors see. This is good for everyone. Yahoo is also adding new features like ad testing, geo-targeting and fast ad activation. The new model is designed to help advertisers spend less time in bidding wars and more time creating the most relevant, effective ads, which can help drive better results for your business.

Yahoo! & Google 1 year stock performance below:

Here are the highlights from the Yahoo! earnings release.

Fourth Quarter 2006 Financial Results

• Revenues were $1,702 million for the fourth quarter of 2006, a 13 percent increase compared to $1,501 million for the same period of 2005.


• Marketing services revenue was $1,490 million for the fourth quarter of 2006, a 13 percent increase compared to $1,315 million for the same period of 2005.


• Fees revenue was $213 million for the fourth quarter of 2006, a 15 percent increase compared to $186 million for the same period of 2005.


• Revenues excluding traffic acquisition costs (”TAC”) were $1,228 million for the fourth quarter of 2006, a 15 percent increase compared to $1,068 million for the same period of 2005.


• Gross profit for the fourth quarter of 2006 was $1,012 million, a 12 percent increase compared to $906 million for the same period of 2005.


• Operating income for the fourth quarter of 2006 was $308 million (including $95 million for stock-based compensation expense recorded under the fair value method), a 6 percent decrease compared to $329 million (including $19 million for stock-based compensation expense recorded under the intrinsic value method) for the same period of 2005.


• Operating income before depreciation, amortization and stock-based compensation expense for the fourth quarter of 2006 was $540 million, an 18 percent increase compared to $459 million for the same period of 2005.


• Cash flow from operating activities for the fourth quarter of 2006 was $167 million, a 65 percent decrease compared to $481 million for the same period of 2005.


• Free cash flow for the fourth quarter of 2006 was $278 million, a 16 percent decrease compared to $330 million for the same period of 2005.

Will Google or Yahoo! perform better in 2007?

There is a lot of commentary on the earnings release:

More Discussion via Techmeme:

Jonathan Liss / SeekingAlpha Internet Stocks: Yahoo Issues Weak Forward Guidance, Announces Early ‘Panama’ Roll Out