Yahoo! earningsYahoo (YHOO) reported first quarter results Tuesday that soundly beat Wall Street's earnings estimates, but fell short of analysts' expectations on revenues. And apparently revenues matter more. Yahoo's stock fell 3.59% to $17.72 a share in after-hours trading.

Yahoo, which has been transitioning to the media business and away from its search engine and content-aggregation roots, reported a net profit of 22 cents per share in the quarter that just ended, an improvement over year ago figures when it posted net profits of eight cents a share.

But excluding a one-time gain from the sale of Zimbra and a payment from Microsoft as part of its search deal, the company's quarterly results came in around 15 cents a share.

Beat Analyst Expectations

That still soundly surpassed analysts expectations of net income of nine cents a share, according to Thomson Reuters.

Yahoo's earnings received a substantial lift from cost savings from its Microsoft (MSFT) search deal, as well as tax rate benefits. The software giant issued two payments toYahoo: one for $35 million, as part of its search operating expense reimbursement, and an additional $43 million in one-time transition costs to reimburse Yahoo for moving its search technology over to Microsoft.

Yahoo's revenues rose to nearly $1.6 billion in the quarter, up 1% from the previous year. Analysts were expecting the Internet company to generate $1.62 billion, according to Thomson Reuters.

'A Solid Quarter'

"The economy continues to improve and we delivered what I call a solid quarter," Carol Bartz, Yahoo CEO, said during a conference call with analysts. "Revenues stabilized and profits were up."

Revenues generated from display advertising appearing on websites owned and operated by Yahoo grew 20% in the quarter compared to last year, but revenues from paid search ads fell 14% in the quarter.

"I don't think it's any secret that for the past 18 to 24 months we've had a tough road to hoe in search," Bartz said. "And there was definitely a sugar low after we announced the Microsoft search alliance last year. We had a lot of work to do internally to get ready for it. And we weren't aggressive enough on volume, even though we were focusing on improving RPFs. But all of that is the past now. We believe search share has bottomed and will trend up in the second quarter, thanks to our work to grow volume."

Wall Street Yawns

Wall Street apparently was not wowed by Yahoo's earnings. "This was not a breakout quarter for Yahoo!, 'tho arguably, YHOO's valuation doesn't require a breakout quarter," noted Citigroup analyst Mark Mahaney, in a research note after the earnings.

Yahoo is "clearly participating" in a robust recovery in display advertising, he said, but noted: "YHOO's overall Internet usage/Search share stabilization is very unclear."

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