Yahoo Inc. raised its financial target Wednesday, reflecting expectations that the Internet company will attract more online advertisers as it reaps savings from an upcoming search partnership with Microsoft Corp.
In a presentation for stock market analysts, Yahoo projected its operating profit margin will range from 18% to 24% by 2013. That’s more ambitious than the margin of 15% to 20% forecast by the company in its last all-day meeting with analysts seven months ago.
Reaching the new goal will be a challenge, given Yahoo’s operating profit margin last year was just 6%.
Yahoo is planning on its annual revenue to increase by an average of 7% to 10% through 2013. The company’s revenue declined 10% last year as the recession drove down Internet ad rates and shrunk marketing budgets. This year started off better, with revenue edging up 1% in the first quarter.
Last year’s downturn turned another Yahoo forecast into a broken promise. In early 2008, Yahoo released a financial blueprint calling for net revenue growth of about 25% in 2009 and 2010. That rosy outlook came while Yahoo co-founder Jerry Yang was trying to fend off an unsolicited takeover attempt by Microsoft.
Yahoo hired Silicon Valley veteran Carol Bartz to replace Yang as CEO 16 months ago in an attempt to snap out of prolonged financial funk and lift the company’s sagging stock.
Microsoft is now responsible for key piece of Bartz’s turnaround strategy by providing the technology that will power Yahoo’s search engine and provide ads tied to the requests made by users.
Yahoo will keep 88% of the revenue from search ads clicked on its website while spending less on engineers, computers and research to deliver the results. By 2013, Yahoo expects the Microsoft deal will produce at least $650 million in annual savings. Overall, Yahoo expects its annual costs to rise by an average of 2% to 3% through 2013.
