Wednesday, October 18, 2006
Yahoo Profits Plunge
Yahoo reported that despite a 20 percent growth in sales over the previous year, its profits for the 3rd quarter dropped by 38 percent.Yahoo blamed the reduced profitability on its inability to deliver a new advertising system (Project Panama) as well as a slowdown in financial and automotive advertising, accord to the Mercury News.
While its never good to lose more than a third of your profitability, the numbers indicate that Yahoo is spending too fast for its growth, even though 20 percent is nothing to sneeze at. Yahoo continued to see more visitors than Google, but Yahoo actually pays for much of its content rather than simply linking out. It is a more complicated model than Google's, but continued rapid growth is possible.
Yahoo's model requires higher CPMs to pay for the licensing fees, so a better ad system is crucial to its continued success. Investors were smart not to slam Yahoo's bad earnings, and it even looks like a decent time to buy the stock.
While today Yahoo is a better destination for finding media, Google's acquisition of YouTube will hurt the company's growth. Yahoo needs to continue to stay ahead of Google in efficiently matching users with their desired content, and their acquisition of AdInterax should help them to monetize search.
Posted By John Gartner at 09:16 AM
Permanent Link: Yahoo Profits Plunge
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