Yahoo quarterly results improve; Microsoft shrugs

By Eric Auchard

SAN FRANCISCO (Reuters) - Yahoo Inc (YHOO.O) posted a better-than-expected quarterly profit on Tuesday, but failed to deliver the stand-out results its shareholders hoped might force Microsoft Corp (MSFT.O) to raise its takeover bid.

Microsoft Chief Executive Steve Ballmer had signaled before the report's release that nothing Yahoo said about the quarter would change its resolve. Afterward, sources familiar with Microsoft's thinking said the results gave it no reason to revalue its offer, now worth $43 billion.

"I wish Yahoo all the success with its results, but it doesn't affect the value of Yahoo to Microsoft," Ballmer said on Tuesday during a visit to Morocco, in comments first reported by Reuters.

Yahoo left unchanged its previously lowered revenue outlook for the year and its shares ticked down half a percentage point in extended trade. Microsoft stock edged up by a similar amount as traders discounted the chances the software giant would raise its cash-and-stock offer, initially worth $31 a share.

Yahoo stuck to its forecast for sluggish 2008 revenue growth of between 3 percent and 15 percent in the face of weaker online advertising demand in sectors such as finance, retail and travel.

Microsoft has set a Saturday deadline for Yahoo to strike a deal or face a hostile takeover battle and a lower offer.

"Microsoft is breathing a sigh of relief," said Jim Friedland, an analyst at Cowen & Co. "Even though these are solid results, given long- and short-term challenges, there's been no overall shift in Yahoo's business.

"Microsoft's offer is still the best offer on the table," he said, adding the software maker could "modestly raise" its bid just to close the deal.

Mike Binger, fund manager at Thrivent Financial, which owns shares in both Microsoft and Yahoo, said: "I would say at this point Microsoft would stay their bid."

Buoyed by a $401 million non-cash gain on a stake in China's Alibaba.com Ltd (1688.HK), Yahoo's first-quarter net income rose to $542.2 million, or 37 cents per diluted share, from the year-ago quarter's $142.4 million, or 10 cents per diluted share.

Excluding one-time items and stock compensation costs, the beleaguered Internet company reported a profit of $150 million, or 11 cents per share. On that basis, Wall Street analysts, on average, were looking for a profit of 9 cents per share, according to Reuters Estimates.

Chief Financial Officer Blake Jorgensen called the results "right on track" despite the distraction of Microsoft's offer.

"We are not opposed to a deal with Microsoft," Jorgensen told Reuters. "What we are opposed to is seeing it at a value that discounts the underlying value of the company."

Yahoo said it had already spent $14 million on outside advisors related to the bid and other strategic efforts.

Sources familiar with the matter told Reuters on Tuesday that Yahoo was still in separate talks with News Corp NWSa.N and Time Warner Inc (TWX.N) about other types of deals.