Yahoo Gets Morale Boost From New Online Ad Formula


Yahoo’s month-old upgrade to its advertising formula for making money from online search requests so far has done more to lift the Internet powerhouse’s morale than its finances, the company’s two top executives said Tuesday.

Sticking with guidance given in January, Chief Financial Officer Susan Decker told a technology conference that a new advertising system dubbed “Panama” probably won’t boost Yahoo’s first-quarter revenue even though the improvements have been well-received since their Feb. 5 debut.

But Yahoo CEO Terry Semel said Panama’s launch already has invigorated the Sunnyvale-based company, which is coming off a disillusioning year punctuated by a 35% decline in its stock price and its biggest management shake up since the dot-com bust. Delays in Panama’s development contributed to Yahoo’s woes last year.

Panama “is now out and we are starting to smile again,” said Semel, who is also Yahoo’s chairman. “It has changed the mood and tempo of the company.”

Investors already are betting that Panama eventually will fatten Yahoo’s profits, helping the company’s stock to recover some of last year’s losses. Yahoo shares rose 49 cents, or 1.6%, to close at $30.80 on the Nasdaq Stock Market, leaving the stock price with a gain of more than 20% so far this year.

Panama’s impact on Yahoo’s bottom line is unlikely to become evident until the second half of this year, a point that Decker reiterated Tuesday.

If Panama doesn’t deliver on management’s promises, some analysts believe Semel could lose his job or the company could be pressured into seeking a buyer.

The advertising improvements are supposed to enable Yahoo to do a better job of analyzing search requests to determine what kind of advertising links are most likely to be clicked on — the action that generates commissions.

By Yahoo’s own admission, online search leader Google had developed algorithms that did a far better job of displaying ads that attracted the attention of prospective customers. That advantage helped Google earn $3.1 billion last year, four times more than Yahoo’s profit.

Signaling Yahoo’s renewed confidence, Decker said the company is now aiming to lure some search traffic away from Google. “Our hope and expectation is we will see query share improve as our relevancy improves.”

Google has been widening its lead over Yahoo and other rivals for most of the past two years. Through January, Google held a 47.5% share of the U.S. search market while Yahoo had 28%, according to comScore Media Metrix.

Panama hasn’t had any impact on Google yet, Google Chief Executive Office Eric Schmidt said Tuesday during a media conference in Florida.

In other developments Tuesday, Semel said the company is getting close to hiring two new executives to fill voids created by a reorganization announced in December. The changes included the departure of Dan Rosensweig, Yahoo’s chief operating officer, and Lloyd Braun, who oversaw the company’s media division.

Yahoo is looking for a leader to run a newly formed “audience” division as well as a new CFO to replace Decker, who was promoted to oversee the company’s advertising push.

Yahoo also disclosed in a recent Securities and Exchange Commission filing that Semel was awarded a fully vested option last month to buy 800,000 shares of company stock at an exercise price of $32.12 per share as a bonus for his performance in 2006.

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