Yahoo Beats Profit Estimates

Solid growth in display advertising, but Yahoo's third quarter results fall short of revenue estimates.


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Posted October 19, 2010

David Needle

Yahoo (NASDAQ: YHOO) credited big gains in display advertising and margins for third quarter results that beat analysts' expectations on the profit side. The company fell short of revenue forecasts, but earned $396 million or 29 a cents a share for the quarter. Excluding traffic-acquisition costs, revenue for the quarter came in at $1.12 billion, slightly less than the year ago quarter total of $1.13 billion.

Analysts polled by Thomson Reuters expected Yahoo to report earnings of 15 cents a share on sales of $1.13 billion. The company's earnings were helped by a 13 cents a share benefit from the sale of HotJobs.

Display advertising on Yahoo sites grew 17 percent compared to the third quarter of 2009. Yahoo also said operating margins increased from 5.8 percent a year ago to 11.8 percent in the latest quarter.

"We delivered a solid quarter with good display advertising revenue growth, big gains in operating income, and margins that were double what they were last year," Carol Bartz, Yahoo's president and CEO, said in a statement. "Because we recognize the tremendous value of our assets, we also dramatically stepped up our stock repurchases. We’ve now bought back more than 7 percent of the company's stock this year alone."

Bartz said Yahoo is on track to execute strategies designed to improve profitability and revenue growth, noting that "product rollouts are accelerating thanks to modernization of our underlying platforms." Bartz also said Yahoo's much-ballyhooed search alliance with Microsoft, which gives control of the underlying search infrastructure to Microsoft (NASDAQ: MSFT) as part of an advertising revenue sharing plan, is on schedule to be fully implemented.

"We've disposed of non-core assets while making strategic acquisitions like Associated Content and Citizen Sports, and we've developed key partnerships with Facebook, Twitter, and Zynga to enhance the Yahoo experience for our 600 million users," Bartz added.

Among other highlights noted in the earnings release covering the third quarter, Yahoo said it unveiled one of the world's most energy-efficient, environmentally friendly and cost-effective data center buildings in Lockport, Niagara County, New York.

While the company didn't mention anything about its ongoing struggle to make gains against search giant Google, Yahoo did say recent its search improvements are only the beginning in a series of planned search enhancements designed to "more fully leverage Yahoo's rich content and technology platforms and help people get to the entertainment and news content they care about on all connected devices."

Yahoo's shares dipped 3 cents in after hours trading to $15.52.

David Needle is the West Coast bureau chief at InternetNews.com, the news service of Internet.com, the network for technology professionals.

Tags: earnings, Yahoo search, Yahoo, advertising, online advertising

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