Search Fuels 178% Q4 Gain at Yahoo

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Yahoo reported a strong fourth quarter yesterday thanks largely to continued growth in its paid search business.


Reporting results for the first time since closing its acquisition of paid search provider Overture Services, Yahoo said increased search advertising helped power Yahoo's marketing services revenue to $545.5 million, a 178 percent increase from the same period a year earlier.


Without so-called traffic acquisition costs paid to Overture's search partners, which Yahoo counts as revenue, marketing services took in $392.6 million, nearly double the year-ago period.


Overall, the Sunnyvale, CA, company met forecasts of analysts, returning $75 million in net income on sales of $511.3 million, excluding TAC.


"We delivered the best performance in the company's history," Yahoo CEO Terry Semel said on a conference call. He cited Yahoo's nearly $2 billion worth of search acquisitions as a major driver of revenue growth. The company has stopped breaking out search from its branded advertising.


Thanks to search and continued strong demand from traditional advertisers for branded advertising, Semel said Yahoo's advertising business likely would outpace the industry again, growing 25 percent to 30 percent in 2004.


In further search moves, he said Overture extended its agreement to provide paid search for MSN across Europe and to South Korea. MSN is Overture's largest outside search partner, but industry analysts anticipate it will build its own paid search capacity rather than rely on a subsidiary of a rival portal.


"Our mutual relationship is quite good, very friendly and very businesslike," Semel said. "We're thrilled they've chosen to extend pretty much across the world with Overture."


Semel also confirmed that Yahoo would replace Google with its own algorithmic search technology Inktomi in the first quarter. The move, long expected since the December 2002 acquisition of Inktomi, will set up Yahoo and Google as direct competitors.


In November, Google accounted for 34.9 percent of all Internet searches, according to comScore qSearch. Yahoo trailed in second place with 27.7 percent. Yahoo executives estimate that each percentage point of search share translates into $200 million in revenue.


MSN, which holds a 14.6 percent share of the searches, relies on Inktomi for its algorithmic search. And Inktomi's profile on MSN grows today, as MSN ceases to carry Looksmart's paid inclusion listings.


Semel said Yahoo would continue to roll out search-related features. One area for expansion is with Overture's Content Match contextual listings, which already are carried in some Yahoo verticals. Semel also said Yahoo would offer paid inclusion listings, in which advertisers pay to have their Web pages crawled but are not guaranteed placement.


Brian Morrissey covers search marketing for DMNews.com. To keep up with the latest search marketing news, subscribe to our free weekly e-mail newsletter Search Engine Marketing by visiting www.dmnews.com/cgi-bin/newslettersub.cgi.


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