Yahoo's Q1 Profit Soars in Sign of Web Ad Rebound

Web pioneer reports strong profits in first quarter as ad spending returns and it begins to move ahead with its search and advertising deal with Microsoft.

Web pioneer Yahoo (NASDAQ: YHOO) today reported soaring profits that handily beat analysts' expectations, giving the company a much-needed financial boost and offering fresh evidence that the online advertising sector is on the rebound.

Excluding one-time charges, Yahoo reported earnings of $0.15 per share for the first quarter, almost double the mark of the year-earlier period and well ahead of the Street's consensus estimate of $0.09 per share, according to polling by Thomson Reuters.

Yahoo reported net income of $310.2 million, a 164 percent increase over the $117.6 million the company posted in the first quarter of 2009.

"As the economy continues to improve, we delivered what I'd call a solid quarter," CEO Carol Bartz said on a conference call with financial analysts. "The headline news is that display advertising grew 20 percent year over year, ahead of the market."

Overall revenue increased 1 percent from the first quarter in 2009 to $1.6 billion.

Perhaps more than any company but Google (NASDAQ: GOOG), Yahoo serves as a bellwether for the online ad industry. Just last week, Google topped Wall Street's expectations with a solid first quarter bolstered by healthy increases in ad spending.

Across the industry, recent weeks have seen several bullish forecasts from market research firms arguing that the industry is well on its way to recovering from the severe slump of 2008 to 2009.

Yahoo said that the gathering economic momentum has been a catalyst for large advertisers to resume spending online, shelling out large sums for prominent placement on the company's high-traffic sites.

"As the market leader in display, we're well position to benefit from this trend," Bartz said. "The display market is coming back. ...With this comeback, the quality of advertisers is on the rise, and that means that the quality of ads is also up."

Bartz spent much of last year working to rebuild the Yahoo brand and restore some of the company's luster that had faded under her predecessors amid slumping revenue and lengthy and a seemingly endless series of deal talks with other firms to determine the future direction of the company.

Now that that soap opera has come to an end and Yahoo has emerged with a multi-year search advertising partnership with Microsoft, the company is looking to reposition itself as one of the biggest brands on the Web, layering in more social features to popular services like its e-mail client and search engine.

Microsoft has agreed to reimburse Yahoo for the transition costs associated with migrating its search technology to Microsoft's platform under the partnership. In the first quarter, Yahoo said that Microsoft paid $78 million of the $150 million cap under that agreement.

The two companies won regulatory approval from the Department of Justice and European Union in the first quarter, and began the process of combining their search operations Feb. 23.

Kenneth Corbin is an associate editor at, the news service of, the network for technology professionals.

Tags: Microsoft, earnings, Yahoo search, Yahoo, advertising

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