Yahoo’s earnings avoid a ‘disaster’
The corporate drama that has weighed heavily on Yahoo Inc.’s managers also cut into the Internet giant’s second-quarter earnings report Tuesday. Investors were braced for worse.
Profit declined again in the second quarter and missed Wall Street’s lowered expectations. Yahoo attributed the shortfall to increased spending on new projects and fees to advisors in its takeover battle with Microsoft Corp. and proxy fight with dissident shareholder Carl Icahn.
“It was a disappointment,” Sanford C. Bernstein analyst Jeffrey Lindsay said. “But people were fearing a disaster.”
Yahoo shares rose 59 cents, or 2.8%, to $21.99 in extended trading after slipping 27 cents, or 1.2%, to $21.40 in the regular session.
Chief Financial Officer Blake Jorgensen called the economic environment difficult, echoing suggestions of a slowdown in online advertising in earnings reports from Google Inc. and other Internet companies last week.
But doubts about the company’s future were eased somewhat when Yahoo management maintained its revenue outlook for the rest of 2008. Yahoo narrowed the range of its forecast to between $7.35 billion and $7.8 billion.
Yahoo said it would pursue its search advertising partnership with Google in September if the deal receives regulatory approval. And management did not rule out selling stakes in its Asian assets or pursuing acquisitions. Chief Executive Jerry Yang told analysts that Yahoo had been exploring “every alternative possible” including financial transactions to boost shareholder value.
None of the initiatives will deliver to shareholders the short-term payout of Microsoft Corp.’s abandoned $47.5-billion takeover offer.
Under increasing pressure to revive growth at Yahoo, Yang bought himself breathing room Monday when he negotiated a cease-fire with Icahn.
But Yahoo is unlikely to catch much of a break from investors at its Aug. 1 annual meeting. The company’s continuing lackluster performance irks investors frustrated by the stock price that has languished since Yahoo rejected Microsoft’s offer.
Yang said he was pleased with Yahoo’s performance in light of the ongoing turmoil. “The indicators on Yahoo’s progress are promising,” he told analysts.
The Sunnyvale, Calif., company reported earnings of $131 million, or 9 cents a share, in the quarter, down nearly 19% from $161 million, or 11 cents a share, a year earlier. Analysts had estimated earnings of 11 cents a share, according to Thomson Financial.
Weighing down the quarter was the $22 million -- 17% of net income -- that Yahoo had shelled out for advisors and legal costs to deal with Microsoft and Icahn.
Revenue totaled $1.8 billion, a 6% rise from $1.7 billion a year earlier. After subtracting commissions paid to advertising partners, Yahoo collected $1.35 billion, below analyst projections.
Yahoo commands a smaller share of the online advertising market than Google but has been holding its own. Although the slowing economy took a bite out of finance, travel and retail advertising buys during the quarter, advertising revenue rose 12% from a year earlier, minus the partner commissions.
The firm said it was making progress on a new advertising platform that automates the buying of online ads. The search business also was healthy, with the number of queries growing 11% year over year.
But Yahoo may be testing investors’ patience.
“While there is always an interesting array of new product releases and announcements coming from the company, at some point those announcements have to translate into the numbers,” said Anthony Valencia, media analyst for TCW Group in Los Angeles. “Thus far, there has been little evidence of that.”
The rise in expenses troubled Canaccord Adams analyst Colin Gillis. Despite the departures of key employees and executives, Yahoo added 500 staffers during the quarter for a total of 14,300. But he was relieved to see the company hanging tough in a weakening online advertising market.
“I call it the rice cracker quarter,” Gillis said. “It doesn’t taste that good, but it’s not that bad for you.”
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