Yahoo advertising gathers pace

Yahoo's shares jumped by 10 per cent in after-market trading yesterday as Wall Street breathed a sigh of relief that the long-awaited turnround in the internet company's online advertising business appeared to be gaining steam.

"While we have a lot more to do, we have taken some important steps and made a lot of progress," said Jerry Yang, who took over as chief executive officer in June as the company struggled to reverse a slide in its share of internet advertising.

Yahoo's shares have fallen over the past six months on concerns about a widening gap compared with Google's more efficient search advertising system, as well as the impact of new lower-priced forms of display advertising that were eating into Yahoo's traditional "premium" advertising business.

Earnings for the quarter to the end of September pointed to a reacceleration of growth in both parts of the advertising business, according to Yahoo executives.

Revenues, excluding so-called traffic acquisition costs paid to affiliated websites, grew by 14 per cent during the quarter, to $1.28bn, faster than the 11 per cent Wall Street had expected. The internet company said that while it continued to see a fall-off in business that comes through affiliates, revenues generated by its in-house websites and services had risen strongly, by 22 per cent from a year before.

The latest quarter brought a turnround in Yahoo's display advertising business after five quarters of revenue deceleration, said Sue Decker, president. Growth had fallen to "the low teens" from more than 40 per cent in early 2006 as advertisers turned to rival advertising networks that reach new, lower-priced places to advertise, such as social networks.

However, in the latest quarter, revenue growth from display advertising jumped back to "nearly 20 per cent", Ms Decker said; a result of recent acquisitions and other adjustments to react to structural changes in the online ad market.

Meanwhile, Yahoo's new search advertising system, known as Panama, continued to fuel a rebound in that part of the business as the system was rolled out in Japan and the UK. As a result, search revenues rose by more than 30 per cent compared with a year before.

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