Yahoo Sees No Boost From Ad System Until Next Year

By Eric Auchard

Internet media giant Yahoo Inc. plans to introduce its revamped Web search advertising system in the third quarter, but expects no financial contribution in 2006, executives said on Wednesday.

"We don't expect a financial contribution this year," Chief Financial Officer Sue Decker said at the company's annual analyst meeting here. "We are looking more toward 2007."

"It would be premature to try and put numbers around that," Decker said in response to a question on the potential financial contributions of the advertising system to Yahoo results.

Executives originally said they would release details of how and when the much-anticipated ad service would make money at the meeting.

Decker said she was making no change to the company's prior outlook for 24 percent to 31 percent growth this year. Longer term, she expects Yahoo to grow faster than the Internet industry as a whole, mentioning a target of 25 percent to 26 percent rate.

"It would be an aspirational growth rate to double that to 25 percent to 26 percent," Decker said in response to one analyst's question, but shied away from his more aggressive 30 percent long-term revenue growth calculation.

"I wouldn't take that so literally -- but faster than the industry growth rate," Decker said.

Industry growth is expected to slow from around 30 percent presently to annual growth rates around 22 to 24 percent over time, analysts predict.

In April, the company said its 2006 year revenues would range between $4.6 billion and $4.85 billion.

Tim Cadogan, vice president of Yahoo's search business, said a redesigned software console used by ad buyers, along with the back-end technology will be put in the hands of advertisers by the third quarter in the United States.

International advertisers will gain access to it during the first-quarter of

2007, he said.

However, the system's revised advertising ranking and pricing mechanisms will only become available in the fourth-quarter of this year in the United States and some time in the first-quarter of 2007 for international clients, Cadogan said.

Yahoo began, earlier this month, to test the paid search ad system that aims to compete with market leader Google Inc. by offering advertisers an easier way to manage placing ads alongside consumers' keyword Web search results.

Microsoft Corp., previously a major customer of Yahoo's search advertising system, recently unveiled its own Web search advertising system, setting up a three-way battle in the online advertising market.

Decker said Yahoo's margins have stabilized in recent years at around 40 percent, as the company balances advertising growth against the need to invest to fuel further growth, to fend off competition from other major Internet companies.

At least half of future revenue growth will come from existing users spending greater amounts of time on its network of Internet media and e-commerce sites, rather than relying on new users, Decker said.

"More than 50 percent of our revenue growth will come from (increased) revenue per user," she said.

Drivers of this growth reflect the increasing availability of broadband Internet connections, mobile phone access to the Internet, Web search improvements and new products.

Some analysts expressed disappointment that the company did not set any aggressive new targets for its revamped search business.

But Morgan Stanley analyst Mary Meeker said the mood of Yahoo executives appeared upbeat, despite the lack of news at the meeting. "Their outlook appears positive for the short-term and the long-term," said Meeker, who rates Yahoo "overweight."

Yahoo closed down 86 cents, or 2.78 percent, to end the day at $30.11 on Nasdaq.

Copyright 2006 Reuters Limited.

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