Yahoo Seeks New Sources of Non-Advertising Revenue

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Despite six dismal quarters, there may be light at the end of the tunnel for Yahoo Inc.


In a report released last week, U.S. Bancorp Piper Jaffray analyst Safa Rashtchy called the first quarter the start of Yahoo's recovery.


"[The first quarter] marks the beginning of the first [year-to-year] improvement since the dot.com crash," Rashtchy wrote. "From this point on, even excluding the HotJobs impact, we expect Yahoo to report healthy, yearly increases in revenues and profits, mostly driven by the non-advertising revenues."


The company last week reported its sixth consecutive quarterly loss, driving home the point that analysts have made for the past year -- the portal needs to diversify its revenue stream and lessen its dependence on advertising as a source of income.


Yahoo CEO Terry Semel said in a conference call with analysts April 10 that 37 percent of the company's revenue in the first quarter came from non-advertising sources, up from about 20 percent a year ago. Semel also has said he wants advertising to account for half of revenue. Advertising used to make up about 90 percent of Yahoo's revenue.


The company reported a first-quarter net loss of $53.6 million, or 9 cents per share, compared with last year's loss of $11.5 million. The performance, however, met analyst expectations.


Yahoo this month began a subscription-based online gaming service called Yahoo Games All-Star. Though it offers nothing new from the company's card, board and word games on its free Yahoo Games site, the company may add exclusive content in the future.


Yahoo's games service, which includes the ability for players to set up private game rooms, is reportedly among its more profitable offerings. Other premium services include tools for running tournaments and leagues and voice chat capability. Subscription prices are $7.95 a month, $19.95 for three months or $59.95 for a full year.


Yahoo also began charging for features on its GeoCities Web site-builder service and is gauging customers' willingness to pay for streaming video services.


Earlier this month, Yahoo started testing a plan to charge customers $1.99 a minute for telephone support for its free e-mail services. This is Yahoo's latest move to tack fees onto services related to e-mail.


In March, the Sunnyvale, CA, company began charging customers to automatically forward their Yahoo messages to outside e-mail services and started limiting data storage on its site to encourage customers to pay for extra space.


Beginning April 24, Yahoo will charge for e-mail forwarding. Until then, customers can access e-mail for free as long as they agree to accept third-party marketing messages.


For now, Yahoo users will be charged for phone support only if they call a 900 number. Customers who access phone support by calling Yahoo's main number will not be charged.


Due to an accounting change the company was able to report income before taxes of $10.5 million, or 2 cents per share. Yahoo's net revenue for the quarter was $192.7 million, up from $180.2 million a year earlier.


The accounting change requires companies to assess the goodwill recorded from previous acquisitions and record one-time charges that do not affect cash or the company's operations. Goodwill is the difference between what a company pays for an acquisition and the assets of the acquired company.


Under the new rules, goodwill is still recognized as an asset, but its amortization is no longer allowed. This has the effect of on paper lowering merger and acquisition costs, but also lets companies report earnings that are higher than they actually are.


Yahoo said net revenue from its marketing services division fell to $120.9 million in the first quarter from $141.9 million a year ago. Revenue from its fees and listings business rose to $54.9 million, from $33.2 million. Transactions revenue more than tripled to $16.6 million from just over $5 million in 2001.


The company said it had cash and equivalents of $1.3 million at the end of the first quarter, down from $1.5 million last year.


In the quarter, Yahoo's audience grew to 237 million unique users, up from 192 million in 2001. Traffic rose to 1.62 billion page views per day, from 1.1 billion.


Last month, Yahoo debuted a new ad unit on its Yahoo Finance Web portal that it hopes advertisers will consider an alternative to print ads. Called the SuperREC -- for super rectangle -- the unit sits dead center across the top of the page. Travelocity.com is the first advertiser to use it. The unit, which runs alone on the page, lets advertisers include up to 10 seconds of Flash animation.


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