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Yahoo! profits slip but advertising picks up

Yahoo! has reported third-quarter pre-tax profits of $151m (£74.2m), down 5% year on year, but there are signs its online advertising business is gaining momentum.

Yahoo! has experienced a troublesome time over the past six months and there are fears about Google's more efficient search advertising system opening up a bigger gap between the two rivals.

The emergence of new lower-priced forms of display advertising have also been eating into Yahoo!'s traditional premium advertising business.

Yahoo!'s shares have fallen over the past six months and, in June, Terry Semel stepped down as chief executive to be replaced by the portal's founder Jerry Yang.

However, the company's third-quarter profit figures point to growth in its search and display advertising businesses.

Revenue from display advertising grew at nearly 20% in the first three months after almost five quarters of decelerating growth. Growth had fallen to the low teens from more than 40% in early 2006 as advertisers turned to rival networks.

Overall, revenues for the three months to September rose by 12% to $1.768bn against $1.58bn in the same quarter last year.

Yang said: "While we have a lot more to do, we have taken some important steps and made a lot of progress."

The newly installed CEO then turned his attention to Google, by issuing a clear statement aimed at Yahoo!'s closet rival.

Yang declared it was critical to Yahoo!'s future to make the search engine the destination of choice for most consumers on the internet.

He said he wanted to proactively market services such as Yahoo! Finance and Yahoo! Sports as part of a wider plan to grow the company's popularity among internet users.

He also said he wanted to establish Yahoo! as a "must-buy" for advertisers and estimated the $45bn annual online advertising market will have grown to $70bn by 2010.

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