Yahoo triples profit, beats expectations

The headquarters of Yahoo Inc. is pictured in Sunnyvale, California, May 5, 2008

SAN FRANCISCO (Reuters) - Yahoo Inc's quarterly profit more than tripled as cost cuts and asset sales offset revenue declines, and the Internet company said its top advertisers are beginning to spend again.

Shares of Yahoo, the top U.S. seller of online display ads but a distant No. 2 to Google Inc in search, jumped 5 percent after the results, which analysts said boded well for the fourth quarter, when ad spending should improve further.

"You have to view Yahoo's cup as being half full rather than being half empty. They seem positioned for a turnaround with the deal with Microsoft and with branding," Gartner analyst Allen Weiner said.

"They are pretty well-positioned to make a comeback in Q4. These numbers are not going to hurt them," he said.

Yahoo has undergone significant restructuring since Chief Executive Carol Bartz took over in January. It said in April it would lay off 5 percent of its workforce, or about 675 jobs, and it also pulled the plug on underperforming properties.

Yahoo also signed a 10-year Web search partnership with Microsoft Corp to challenge Google, a pact that U.S. and European antitrust regulators are evaluating.

Chief Financial Officer Tim Morse said on a conference call that the company still believes the deal will close in early 2010, and that they can make significant progress on integration in one or two major markets next year.

Net income was $187.8 million, or 13 cents a share, in the third quarter, up from $54.3 million, or 4 cents per share, in the year-earlier quarter. Analysts were looking for 7 cents per share, according to Thomson Reuters I/B/E/S. Yahoo said the sale of its stake in Chinese e-commerce company Alibaba.com contributed 4 cents per share to earnings.

"I think we're starting to see some of the top advertisers begin their spending," Morse told Reuters in a phone interview. "I'm not going to predict when the growth rebounds, but I feel good that things are no longer on the downward trend."

Excluding traffic acquisition costs that Yahoo shares with partners, net revenue was $1.13 billion in the third quarter, close to the average analyst forecast of $1.12 billion. That compared with net revenue of $1.14 billion in the June quarter and $1.33 billion in the year-earlier period.

Total operating expenses in the third quarter fell 18 percent from a year ago to $775 million.

"The key to Yahoo is that the revenue number is still sequentially flat. We knew the new management could drive some of the cost out of the system, but we want to start to see what can be done to have the company return to growth," said Colin Gillis, analyst at Brigantine Advisors.

"This is a company that's still very much in the process of being restructured," he said, adding the results were "a mild positive. They're doing what they're supposed to be doing."

Yahoo said gross revenue in the fourth quarter would range from $1.6 billion to $1.7 billion, with traffic acquisition costs ranging between 26 percent and 27 percent of revenue. That meant net revenue would be between $1.17 billion and $1.26 billion, against the average Street forecast of $1.22 billion.

Shares of Yahoo, the second most popular Internet destination in the United States, rose 87 cents to $18.04 in after-hours trade on Tuesday.

Yahoo's stock is up about 20 percent since early August, regaining the ground it lost following the company's announcement of a 10-year deal to outsource its search technology to Microsoft Corp.

(Reporting by Alexei Oreskovic, writing by Tiffany Wu; Editing by Richard Chang, Leslie Gevirtz)