Yahoo profits sink on weak ad sales

Revenue and profits were both down, but they still beat analysts' forecasts

Yahoo reported steep declines in revenue and profit for the third quarter, pulled down by weak ad sales and the failure of its search partnership with Microsoft to yield strong returns.

The results were ahead of analysts' modest expectations, however, and investors rewarded the company with a small bump in its share price.

Yahoo's income for the quarter ended Sept. 30 was US$293 million, down 26 percent from the same period last year. Revenue was $1.22 billion, a decline of 24 percent, Yahoo said.

Subtracting the advertising commissions and fees it pays to partners, Yahoo's revenue came in at $1.07 billion, down 5 percent from last year and slightly ahead of the analyst forecast, according to Thomson Reuters. Earnings per share before one-time items, at $0.21, were also ahead of expectations.

The year-over-year declines were due primarily to the revenue share Yahoo collects from its search and advertising partnership with Microsoft. Under that deal, brokered several years ago, Yahoo uses Microsoft's technology to provide its search results, and pays some of its search ad revenue back to Microsoft.

Yahoo's display advertising business -- traditionally one of its strongest areas -- also suffered. Revenue from display ads, excluding traffic acquisition costs, was $449 million, flat from the same quarter last year. Including the acquisition costs, display ad revenue dropped 2 percent.

Search revenue, the other big chunk of its business, dropped 13 percent before traffic acquisition costs, to $374 million. Including the traffic acquisition costs, it plummeted 44 percent.

"We're pleased that revenue, operating income and [earnings per share] were all above consensus this quarter," Tim Morse, Yahoo's CFO and interim CEO, said in a statement.

"My focus, and that of the whole company, is to move the business forward with new technology, partnerships, products and premium personalized content -- all with an eye toward growing monetization," he said.

Yahoo's board has said it's looking at "the full range of options" available to it, Morse noted on a conference call. "The board has also said that when it has something to announce, it will do so," he said. "That will take time. It will not be today; it will not be on this call."

After the results were announced, Yahoo's shares climbed about 3.5 percent in after-hours trading, to $16.00. Earlier, in the regular trading day, its shares slipped by $0.23 to $15.47. That's down from their 52-week high of $18.84 in May.

Yahoo has been struggling for years to raise its game against Google and to expand its user base by restoring the pizazz it once showed as an online pioneer. Last month it fired its CEO, Carol Bartz, after she failed to turn the company around after a difficult three years in the job.

Morse took over the position while Yahoo looks for a permanent replacement.

Since Bartz's departure, rumors have surfaced again that Yahoo may be up for sale. Microsoft has reportedly considered making a fresh bid for the company, after a round of acquisition talks collapsed a few years ago. Jack Ma, chairman and CEO of China's Alibaba group, has also said he is interested in buying the company.

Meanwhile Yahoo continues to shuffle its top executive ranks. Just yesterday, Yahoo confirmed that its chief technology officer, Raymie Stata, had been replaced.

The company has been rolling out new content, especially video, to revive its fortunes. Its new Yahoo Screen site carries shows like "Arrested Development" and "Dancing with the Stars." It says it is home to 10 of the most popular websites globally.

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James Niccolai

IDG News Service
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