Enlarge imageBy Eric Auchard
SAN FRANCISCO (Reuters) - Yahoo Inc’s quarterly net profit fell 19 percent but investors took heart that it did not change its outlook despite a weakening U.S. economy and the distraction of Microsoft Corp’s failed takeover bid.
Shares of the Internet company, which just settled a proxy battle with activist investor Carl Icahn, rose 2 percent in extended trade.
"Investors braced for the worst," said Jeffrey Lindsay, analyst at Sanford C. Bernstein. "... these results are poor, but relative to what people were expecting, they’re not so bad."
Chief Financial Officer Blake Jorgensen said Yahoo was not changing its financial view for 2008, even though a difficult economic environment is weighing on online advertising.
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"We are pretty pleased (with results), relative to both the distractions and the economy," he said in an interview.
Yahoo executives made no secret that the quarter included unusual headaches, particularly the back-and-forth with Microsoft. Chief Executive Jerry Yang referred to the battle as "extraordinary," and President Sue Decker called it a "swirl."
In spite of the distraction caused by Icahn and Microsoft, Yang said on a conference call his company intended to keep looking at possible transactions.
"We have looked at just about every alternative you could imagine as far as looking at how do we best position the company to go forward either through transactions and/or financial options," he said.
Second-quarter net income fell to $131 million, or 9 cents per diluted share, from $161 million, or 11 cents per share, a year earlier. Excluding one-time items, Yahoo earned $139 million, or 10 cents per share, down from $163 million, or 12 cents per share, a year ago.
Gross revenue rose 6 percent to $1.798 billion. Net revenue excluding payments to affiliated Web sites that carry Yahoo ad services rose 8 percent to $1.35 billion. Analysts, on average, had expected $1.37 billion, according to Reuters Estimates.
CONSUMER GOODS, FINANCE SOFTENING
Executives highlighted a shift occurring in advertising, with consumer goods and financial sector advertising softening and shifting away from branded advertising and into more performance-based marketing.
So the company said it was attempting to shift its sales channels toward more performance-related display advertising.
Yahoo forecast third-quarter revenue of $1.78 billion to $1.98 billion and 2008 revenue of $7.35 billion to $7.85 billion. It projected operating income before depreciation, amortization and other items of $405 million to $465 million for the third quarter and $1.83 billion to $1.98 billion for the year.
"It looks like they tightened the (forecast) range," said Colin Gillis, analyst at Canaccord Adams. "They didn’t make any radical change, but it’s going to be a stretch for them to exceed the numbers."
Yahoo’s earnings come a day after it agreed to appoint Icahn and two of his nominees to its board, ending a proxy battle that would have otherwise been decided at its August 1 annual meeting, and reducing the chances of immediately revisiting a Microsoft deal.
Analysts said the Icahn settlement could buy some time for Chief Executive Jerry Yang and his management team to turn around Yahoo, which has been struggling for years to keep pace with rival Google Inc. But that reprieve could be limited if investors don’t see a change in fortunes.
Yahoo shares rose to $21.83 after hours from its close of $21.40.
(Additional reporting by Michele Gershberg and Kenneth Li in New York, Paul Thomasch in Los Angeles; Editing by Braden Reddall)
