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Yahoo Profit Tops Forecasts; Revenue Climbs

Internet-based products and services company Yahoo reported fourth-quarter earnings of 16 cents a share, beating a consensus estimate of 13 cents compiled by Thomson Financial.

Profit in the most recent quarter declined 61% from net income of $683.2 million, or 46 cents a share, at the same time in 2005, but the two quarters didn't provide an apples-to-apples comparison. That's because a one-time gain of $310 million boosted the 2005 results while the 2006 figures included stock option expenses that weren't recorded on Yahoo's books in the previous year.

In a measure far more important to investors, Yahoo's revenue came in at $1.23 billion after subtracting advertising commissions that the company paid to its partners. That figure represented a 15% increase from the prior year and a 10% improvement from 2006's third quarter.

The sequential growth rate carries more weight on Wall Street and helps explain why Yahoo's stock price plunged by 35% last year while the shares of rival Google continued to climb.

Google's quarter-to-quarter revenue, minus ad commissions, has been accelerating at a far faster pace than Yahoo's, and the gap appears to be widening. Analysts believe Google will show sequential revenue growth of 17% when it releases its fourth-quarter results next week.

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Yahoo shares fell 46 cents to close at $26.96 on the Nasdaq Stock Market before the fourth-quarter earnings were announced, then rose nearly 6% to $28.54 in extended trading.

Project Panama Ahead of Schedule

Yahoo is seeing a rapid transition by customers to its highly anticipated Web search advertising system meant to compete with Google, Yahoo's chief executive said.

Chairman and CEO Terry Semel said the Internet media giant is prepared to begin the commercial introduction of the new advertising system on Feb. 5, or about a month earlier than many Wall Street analysts had anticipated.

"I'm happy to report that we have successfully transitioned the large majority of our revenue to the new search system known as Project Panama," Semel told investors during a conference call, referring to major U.S. advertisers.

Semel said existing search ad customers would be converted to the new ad system by the end of the first quarter, leading to revenue improvements from the second quarter forward.

International advertising customers will gain access to the system beginning in the second quarter, he reaffirmed.

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