Yahoo meets low earnings expectations

SAN FRANCISCO Wed Oct 19, 2011 3:31pm EDT

The Yahoo! offices are pictured in Santa Monica, California April 18, 2011. Yahoo! will report its quarterly results on Tuesday.   REUTERS/Mario Anzuoni

The Yahoo! offices are pictured in Santa Monica, California April 18, 2011. Yahoo! will report its quarterly results on Tuesday.

Credit: Reuters/Mario Anzuoni

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SAN FRANCISCO (Reuters) - Yahoo Inc lived up to lackluster third-quarter expectations, but the struggling Internet portal was tight-lipped about efforts to find a new Chief Executive or explore a sale.

Shares of Yahoo, which fired former CEO Carol Bartz in early September before the end of the third quarter, gained roughly 3 percent to $15.98 in after hours trading on Tuesday.

"It looks OK, nothing spectacular, but nothing disastrous, and nothing disastrous is good news for these guys," said Macquarie Research analyst Ben Schachter.

Yahoo's profit and revenue slipped year-on-year during the third quarter, as the company saw weakness in sales of its so-called non-premium online display ads, as well as in its search advertising business.

While interim CEO Tim Morse told investors he expected a typical seasonal improvement in Yahoo's display advertising business during the fourth quarter, the midpoint of the company's forecast revenue range fell a tad short of Wall Street expectations.

Oppenheimer & Co analyst Jason Helfstein said the current state of Yahoo's business is practically irrelevant to most investors.

"Most people who own this own it for a take-out, they're not owning because they believe in the fundamental story," he said. "So long as the core business is not deteriorating and presumably growing somewhat, that pays you for your patience."

Yahoo has been in a state of chaos since the departure of Bartz. The company retained investment banking firm Allen & Co to help conduct a "strategic review" of its business and is reportedly working with executive search firm Heidrick & Struggles to find a new CEO. Morse declined to provide an update on either the strategic review or the CEO search process on Tuesday.

The board "has said that, when it has something to announce it would do so," Morse told analysts at the outset of a conference call, in regards to the strategic review. "That will take time. It will not be today and not on this call."

Asked about the progress of the CEO search, he said only that "the board process was underway."

A number of potential buyers have expressed interest in a deal with Yahoo. Private equity firms Silver Lake Partners, Providence Equity Partners, Bain Capital, Hellman & Friedman, Blackstone Group, and KKR are among those likely to get a look at the limited financial data Yahoo's advisers are circulating.

Strategic buyers, including AOL Inc, Chinese e-commerce giant Alibaba Ltd, which already has a partnership with Yahoo, and Microsoft Corp are also interested. AOL boss Tim Armstrong is said to be pushing investors for a Yahoo deal, while Microsoft, which offered to acquire Yahoo for $47.5 billion a few years ago, is weighing making another run, either by itself or in partnership with others.

CLOSING THE SEARCH GAP

One of the Web's pioneering companies, Yahoo is under pressure as Web surfers and advertisers flock to social networking giant Facebook and Internet search powerhouse Google Inc.

Profit in the third-quarter totaled $293 million, or 23 cents per share, compared with net income of $396 million, or 29 cents per share, in the year-ago period. Yahoo's net revenue -- which excludes fees paid to partner websites -- was $1.07 billion, compared with $1.12 billion at this time last year, and in line with Wall Street expectations.

Despite its struggles, Yahoo continues to be a marquee destination, with page views to the company's media properties up 9 percent in the quarter. The flip side, however, is that search queries were up a paltry 1 percent, while search page views fell 3 percent.

The Sunnyvale, Ca-based Internet icon, which has struggled to revive its online advertising business, said it agreed to extend the revenue per search guarantee in its deal with Microsoft through March 2013. The extension applies to the United States and Canada.

Yahoo said it remains fully committed to the success of the search alliance and the extension represents an "important sign of that commitment."

Earlier this year, however, Yahoo said the partnership was taking longer than expected to pay off due to technical imperfections in the search advertising system. As a result, Yahoo said it did not expect revenue per search to return to pre-Microsoft levels until the end of the year.

Morse also declined to provide an update on Tuesday on when revenue per search would return to pre-deal levels.

"Having extended the RPS guarantee, there's no real reason to be talking about when we think the line crosses," Morse said in an interview with Reuters.

Morse did say that premium display advertising sales were on target for the third quarter, but that non-premium ad sales has a bit of an "underrun." Morse added that, on a year-over-year basis, premium display ads sales were up less than 5 percent and non-premium ad sales were down a similar amount.

Yahoo projected net revenue of $1.125 billion to $1.235 billion in the fourth quarter, compared with $1.22 billion expected by analysts.

(This story is corrected in the 14th paragraph to show third quarter 2010 earnings per share were 29 cents)

(Reporting by Alexei Oreskovic; editing by Andre Grenon)

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Comments (2)
Take it private. Yahoo still has awesome tools, just needs to re-group the management and strategy out of the spotlight. I use Yahoo tools every day and still prefer to others, so hope they get stronger.

Oct 19, 2011 3:07am EDT  --  Report as abuse
sell this piece of crap… Yang needs to go away… what a lucky loser…

Oct 19, 2011 2:04pm EDT  --  Report as abuse
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