Yahoo! on track for earnings good news

Yahoo! will report financial earnings on Wednesday, capping another busy quarter dominated by efforts to beef up its web search business.

The company is expected to report a quarterly profit of 11 cents a share on $497.9m in revenue for the period ending 31 March, according to consensus estimates from Thomson First Call.

Yahoo! reports revenue excluding traffic acquisition costs (TAC), which refers to the percentage of revenue it shares with third parties that display paid search ads from its Overture Services subsidiary. The practice has come under criticism from some Wall Street analysts who believe that TAC clouds Yahoo!'s true financial health. Yahoo! said TAC-less revenue is a more accurate portrait of its overall business.

Analysts are not expecting any drastic changes at Yahoo! and predict continued revenue and profitability growth, fueled by paid search and online advertising.

Martin Pyykkonen, an equity analyst at Junco Partners, said: "I don't foresee paid search having too much downward pressure. I'm expecting it to be up year over year."

Yahoo! CEO Terry Semel said search continued to be the company's main priority in 2004, helped by last year's acquisition of Overture and the integration of search technology provider Inktomi.

Most of Yahoo!'s moves were prompted by heightened competition against popular search engine Google, which is beginning to look more like Yahoo!. Google once powered Yahoo!'s algorithmic search engine but Yahoo! dropped Google in February and replaced it with its own technology.

Last week, word leaked that Google is planning to launch its own free email service called Gmail, which will offer people a gigabyte of storage. Yahoo! offers 4 megabytes of storage and then requires people to pay a yearly fee for extra memory.

The company's premium email is folded into a larger business of paid services, which includes fantasy sports, online personals and its broadband partnership with SBC Communications. In the fourth quarter of 2003, Yahoo! reported $62m in paid services revenue, most of it stemming from its SBC deal.

Yahoo! is also expected to show some gains in its listing business, which is primarily comprised of its HotJobs subsidiary.

Jim Hu writes for CNET News.com