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Yahoo! lavishes $75m on self

Revenue down? Let's spend

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Despite another quarter of un-Google-like declining revenues, Yahoo! says it will reverse several months of cost-cutting, feeding $75m into new hires, new tech, and its very own Yahoo!-trumpeting ad campaigns.

During the quarter ending June 30, Yahoo! revenues fell to $1.57bn, a 13 per cent drop from the same quarter last year. But thanks to recent belt-tightening - including job cuts that jettisoned 5 per cent of its workforce in April and 10 per cent last fall - profits reached $141m, an 8 per cent year-on-year increase.

Nonetheless, CEO Carol Bartz and her new regime will loosen that belt once again. "We are ramping up spending on our priorities this [third] quarter," Bartz said during a conference call with industry analysts and reporters.

After dumping cash from some "buckets," CFO Tim Morse said, the company will now pour it into others. "Cash costs came in at the low-end of our expectations due to savings from the restructuring actions we've taken over the last several quarters," he explained. "We plan to redeploy most of those cost savings into growth initiatives...We need these investments now to ensure we're ready to seize the opportunities that will come as the economy recovers."

Bartz put the added spending at $75m. This will fund new engineers and sales staff, various improvements to the company's infrastructure and ad platforms, and efforts to flaunt the Yahoo! name. "We're hard at work on plans to reposition our most value asset: Yahoo!'s brand," Bartz said. "Our Q3 plans include an initial wave of incremental marketing spend, which will increase substantially into Q4 and next year."

As it continues to battle the effects of a weak economy, Yahoo! saw a 15 per cent drop in search advertising revenue and a 14 per cent dip in display-ad dollars. Like Google, Yahoo! juiced its overall search traffic. Morse put query growth at 9 per cent. But unlike Google, Bartz and Co. couldn't translate this extra traffic into extra dollars.

Controlling upwards of 60 per cent of the market, Google has leverage that Yahoo! doesn't. As Eric Schmidt and company continue to point out, Mountain View's search advertisers are generally willing to pay for as many clicks as they can get. When revenues begin to dip, Google can always push more ads onto its pages, as it has done for the past several quarters.

Or as Bartz put it: "Of course scale matters in search...When you get fewer click-throughs and you get fewer buyer intents, if you have scale and a longer tail, you get to monetize more."

Bartz said the company would continue to tweak its ad platforms in an effort to close the Google gap - on both the search and display side. But she also said the company would cut down on the ads that may annoy people.

"We need to ensure our ads are more relevant and quite frankly less irritating to users," she said. "We're now focusing on search and display adds [on Yahoo! owned and operated sites], improving relevancy, decreasing frequency of some ads, and potentially eliminating others."

This is all part of that $75m outlay. "It's important to put this number in perspective, especially in contrast to the billions in advertising revenues we generate," Bartz added. "We're confident these are the right ways to get us on the right path." ®

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