Bloomberg News

Yahoo Climbs as Profit Beats Estimates on Internet-Ad Demand

October 19, 2011

(Updates with closing shares in fifth paragraph.)

Oct. 19 (Bloomberg) -- Yahoo! Inc., the Web portal that is exploring strategic options, rose after demand for advertising helped third-quarter profit exceed analysts’ estimates.

Profit before some costs was 21 cents a share, the company said in a statement yesterday. That beat the 17-cent average projection of analysts, according to data compiled by Bloomberg. Sales, excluding revenue passed on to partner sites, fell 4.6 percent to $1.07 billion, matching the average estimate.

Yahoo, which has been grappling with rising competition from Google Inc. and Facebook Inc. for users and advertisers, benefited in the recent period from growing demand for online ads, even as it fired Chief Executive Officer Carol Bartz and embarked on a review of its strategy. The board is exploring a “full range” of options for the company, interim CEO Tim Morse said on a call with analysts yesterday.

“The company didn’t fall apart,” said Jordan Rohan, an analyst at Stifel Nicolaus & Co. in New York. “Almost by definition that was greater than expected.”

Yahoo rose 3 percent to $15.94 at the close in New York. The stock has dropped 4.1 percent this year.

Growth Outside U.S.

Net income attributable to the company fell 26 percent to $293.3 million, or 23 cents a share, from $396.1 million, or 29 cents, a year earlier, Sunnyvale, California-based Yahoo said.

Growth outside the U.S. bolstered revenue. In Asia, revenue excluding sales passed to partners surged 20 percent to $221.6 million. Sales in the Americas region dropped 12 percent to $753.7 million.

Fourth-quarter revenue, excluding sales passed to partner sites, will be $1.13 billion to $1.24 billion. Analysts had estimated $1.21 billion, according to Bloomberg data.

U.S. online ad spending is expected to grow 20 percent this year to $31.3 billion, according to EMarketer Inc. Yahoo’s share of display ads, including banners, will be 13.1 percent this year in the U.S., down from 14.4 percent last year, estimates EMarketer. Facebook’s share will climb to 16.3 percent, up from 12.2 percent.

Display ad revenue, excluding sales passed to partners, was $449 million in the third quarter, little changed from $448 million a year earlier. Display sales rose 4.9 percent in the second quarter.

Microsoft Accord

The company also said it recently agreed to extend a revenue per search agreement with Microsoft Corp. in the U.S. and Canada through 2013. The accord had been set to run out in the first quarter of next year.

Bartz, who had aimed to stem market-share losses, left the company amid mounting investor frustration over failed turnaround efforts. Morse, who had served as chief financial officer, said yesterday the company is making progress and is focused on moving forward.

“They hit a single here -- it’s great, but it’s a single,” said Brett Harriss, an analyst at Gabelli & Co. in Rye, New York. “We’re waiting for either a CEO to come in and give us a vision of what Yahoo could be, or we’re looking for the sale of the entire company.”

Potential Bidders

Yahoo has drawn an increasingly crowded field of potential bidders for the company. KKR & Co. and Blackstone Group LP are among the private-equity firms considering possible bids for Yahoo, according to people with knowledge of the matter last week.

In addition, Alibaba Group Holding Ltd., a Chinese e- commerce company whose biggest shareholder is Yahoo, has discussed a plan with Silver Lake and Russia’s Digital Sky Technologies to make a joint bid, people familiar with the matter have said. Another group that is interested in a possible offer includes Providence Equity Partners Inc. and former News Corp. executive Peter Chernin, people said.

“The board is actively looking at the full range of options available to return the company to a path of robust growth and industry-leading innovation,” Morse said on the call yesterday. “The board also has said that when it has something to announce, it will do so. That will take time.”

--Editors: Stephen West, Jillian Ward

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.


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