Yahoo earnings beat estimates, sales fall

SAN FRANCISCO (MarketWatch) — Yahoo Inc. on Tuesday reported a smaller-than-forecast decline in quarterly profit, as the Internet search and advertising company presses ahead with an ongoing turnaround effort.

Yahoo’s earnings for the first quarter beat Wall Street estimates, and its shares of rose more than 2% in after-hours trading, following the report.
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Yahoo YHOO +3.47% said net income fell to $223 million, or 17 cents a share, compared to $310.2 million, or 22 cents a share, in the same quarter last year. The Sunnyvale, Calif., firm said net revenue for the period ended March 31 fell 6% to $1.06 billion.

Yahoo’s first-quarter earnings included an impairment charge of 2 cents a share related to Yahoo Japan, the company said.

The results also compare to a year-earlier period when Yahoo’s earnings were boosted by its sale of the Zimbra email service, and its search partnership with Microsoft Corp.

Analysts polled by FactSet Research had expected Yahoo to report first-quarter earnings of 16 cents a share and $1.05 billion in net revenue.

For the second quarter, the company said it expects revenue excluding traffic acquisition costs to come in the range of $1.08 billion to $1.13 billion. Analysts had been expecting $1.1 billion for the period.

“Our turnaround is proceeding on schedule, and we are very confident that Yahoo is headed in the right direction,” Chief Executive Carol Bartz said during a conference call with analysts.

Bartz pointed to various “proof points,” including the increase that Yahoo saw in online display advertising revenue during the quarter.

Yahoo hired Bartz in 2009 to reboot the embattled company. The CEO has sought to streamline operations and has set a target of reaching a 24% operating margin by 2013. Yahoo said Tuesday that its operating margin excluding the cost of acquiring traffic stands at 18%.

Bartz has also sealed a partnership with Microsoft MSFT +1.19% that has Microsoft powering Yahoo’s search results in a revenue-sharing arrangement.

But in January, Yahoo cautioned that it likely won’t see a significant benefit from the Microsoft partnership in terms of revenue-per-search until the second half of this year, due to “bumps in the road” encountered as the companies align their operations.

Bartz said Tuesday that problems encountered in combining with Microsoft’s search-advertising technology have continued. As a result, Bartz said Yahoo would hold off on moving more of its geographical markets outside the U.S. over to Microsoft’s search advertising technology this year, until the companies “get this thing back to where it needs to be” in terms of revenue growth.

In particular, Bartz said that “as it turns out,” Microsoft’s technology does a poor job of predicting performance for some search advertisers that don’t have a history on their system. Therefore, “many of the new advertisers can’t even get their campaigns in,” she said.

Yahoo said that its gross search advertising revenue fell to $455.1 million in the first quarter, from $841.2 million in the same quarter last year.

Analysts had been anticipating a significant decline in Yahoo’s search advertising revenue.

Yahoo said that gross revenue from online display advertising, a market in which it has long enjoyed a more solid footing, rose to $522.6 million, from $491 million — a 6% increase.

Analysts had been expecting display-advertising revenue growth in the quarter of slightly less than 10%.

Bartz said that Yahoo enjoyed particularly strong interest in its news blogs, and original Web video content. The CEO said that Yahoo’s video advertising still makes up a relatively small part of its total revenue, though it’s “the fastest growing part.”

Yahoo said Tuesday that its total cash, equivalents and marketable securities on hand as of March 31 fell by $101 million compared to Dec. 31, to $3.5 billion.