1. A Study in Contrasts: Yahoo and Google
By Miguel Helft July 16, 2007 1:59 pm
The news in brief: Yahoo is still treading water as Google zooms further
ahead.
There shouldn’t be too many surprises when Yahoo reports financial
results for the second quarter tomorrow. After all, on June 18, just two weeks
before the end of the quarter, Yahoo all but said how it expected the quarter to
unfold. If you didn’t hear about it, it may be because the company packaged
the announcement that results would be on the lower end of their previous
expectations along with much bigger news: the replacement of chief executive
Terry Semel with co­founder Jerry Yang.
For those who missed it, here’s roughly what Yahoo said. First, Project
Panama, a years long effort to close the gap with Google in search advertising,
will begin paying dividends in the second quarter, sooner than previously
expected. Second, display advertising — the banners and other graphical ads
that appear on Yahoo pages and elsewhere on the Web — would be weaker
than expected, wiping out any expected gains from Panama.
In light of that, analysts will be looking closely at two things. How much
better is Panama than the previous system? That’s one area were Yahoo could
get some much­needed good news. The other is whether Yahoo narrows
downward the range of expected results for the remainder of the year. Some

2. analysts are already counting on that. “It would surprise me a bit if they didn’t
guide to the lower end of the revenue range for the rest of the year,” said Derek
Brown, of Cantor Fitzgerald.
And of course, since Yahoo is under new management, the earnings
announcement may well be a platform for company executives to announce
what else they plan to do to revive the company’s fortunes.
On average, Wall Street analysts expect Yahoo to report net revenue of
$1.24 billion and profits of 11 cents a share, or roughly flat when compared
with $1.12 billion and 11 cents in the same quarter last year. Results are due
out on Tuesday after the close of markets.
But Yahoo’s biggest challenge may well be the comparison with rival
Google, which reports results on Thursday after the close of markets. Since the
company reported stellar first­quarter results on April 19, shares have risen
from just over $470 to more than $550. Expectations are for another
blockbuster quarter, largely on the strength of Google’s core business, search
and contextual advertising.
Wall Street is expecting revenues of $2.68 billion and profits of $3.59 a
share, sharply up from $1.67 billion and $2.33 a share in the same quarter in
2006.
Here are some points that Mr. Brown, of Cantor Fitzgerald, made
following Google’s first­quarter results: Roughly one third of online
advertising worldwide flows through Google’s platform; as of the first quarter,
year over year net revenue has grown by 65 percent or more for 21 consecutive
quarters; Google’s net revenue is larger than Yahoo’s and eBay’s and gross
revenue is larger than Amazon’s; despite that, Google is growing seven times
faster than Yahoo and more than twice as fast as eBay and Amazon; and
Google’s profit margins are bigger than those of Yahoo, eBay and Amazon. “It
is bigger, growing substantially faster, with higher margins,” Mr. Brown said.
“That’s a pretty compelling set of attributes.”

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