Yahoo! Sees Early Launch for Panama Part Two

Yahoo! is ahead of plan with the transition to its new Project Panama search marketing platform and plans an early February launch for the second phase, which will use a quality score to determine the most relevant — and most profitable — pay-per-click ads.

The new platform could be a key to making Yahoo!’s PPC ad returns more competitive with those of Google, which currently leads the text-ad market in revenue.

Yahoo! has spent the last few months persuading current and new search marketers to transition their campaigns to the Panama interface, which offer new abilities to target search ads and new tools for correlating keyword bids and audience reach. Previously, the company had suggested that this transition might take until the end of March 2007.

But in a conference call after releasing its Q4 2006 financial results yesterday, CEO Terry Semel said his company has almost finished moving advertiser customers over to the new system.

“I’m happy to report that we have successfully transitioned the large majority of our revenue to the new search system,” he said, adding that the full Panama platform will become operational on Feb. 5.

That next phase in the rollout will introduce a search ad quality score, based in part on clickthrough rates. The system will then favor the more popular and successful PPC ads over underperforming ones, placing them higher and showing them more often.

“We believe this will deliver more relevant ads to users, which in turn will deliver higher-quality leads to advertisers,” Semel said yesterday.

Google introduced an ad quality score years ago as a way to maximize ad clicks and therefore revenue. But Yahoo!’s former ad delivery system relied solely on bid price to place keyword-related ads in its search results.

The news of an accelerated Panama launch and a 13% increase in ad sales were enough to get investors looking past a 61% decline in Q4 profits. Shares of the Sunnyvale CA-based Internet company rose more than 4% in after-hours trading.

The company posted a net profit of $269 million for the last three months of 2006, compared to $683 million in the same period of 2005. Yahoo! said the decrease was largely attributable to stock options expenses and a one-time investment gain a year ago.

Meanwhile, sales were up 13% year-over-year to $1.7 billion, mostly on stronger than expected display ad sales. Excluding the revenue Yahoo! had to share with its publisher partners, net sales were slightly better than the $1.22 billion analysts had been expecting.

Project Panama has already played a part in Yahoo’s financial fate. When it was announced in May 2006, the company originally said it would start moving advertisers to the platform in Q3 2006. That start was later pushed back to the end of Q4 due to unspecified platform problems. News of the delay immediately cost Yahoo!’s share price 21% of its value.

And in fact, while trumpeting the news of Panama’s early launch yesterday, Semel and his colleagues were careful to manage expectations for its impact on Yahoo!’s financial results.

Semel noted that although the company may start feeling the benefit of the Panama platform pretty quickly, the process of maximizing that benefit could take a few quarters. “We expect to see the revenue impact to begin in the second quarter and gain momentum throughout 2007 and beyond,” he said. “You will see ongoing development of advertising and monetization.”

Susan Decker, currently Yahoo! chief financial officer and slated to head its advertising division, said the company will watch the Panama algorithm to make sure it’s producing revenue at peak efficiency in Q1 2007.

Yahoo! also said it expects revenue of $1.12 billion to $1.23 billion in Q1 2007, and $4.95 billion to $5.45 billion for all of 2007. Those guidelines are below the figures a consensus of Wall Street analysts had anticipated for the company’s near future.

Yahoo! faced other challenges last quarter, notably a company-wide reorganization into three operational groups and the departure of two high-profile executives, chief operating officer Dan Rosensweig and media division director Lloyd Braun. CFO Decker will head the newly-created advertiser/publisher division. Chief tech officer Farzad Nazem became head of the technology division, which has responsibility for the Panama rollout. The company is still looking for an executive to lead its audience group, focused on serving Yahoo!’s users.

Semel said yesterday that Yahoo! had made the right moves in its reorganization. “I’m convinced we’re on the right path to deliver long-term shareholder value,” he said.

According to December figures from Nielsen//NetRatings, Yahoo! actually beat Google in growing its share of the U.S. search market, posting a 30% increase to reach 23.6% of U.S. queries for the month, compared to Google’s 22.6% increase. Google remained the far-and-away front-runner in the market, though, garnering 50.8% of all U.S. searches.