Sunnyvale, California — After three years of stumbling financials, and aggressive cost-cutting moves, the Sunnyvale, California-based Yahoo Inc. said that net profit soared more than 244% in the third quarter to 186 million dollars, or 13 cents per share, from 54 million dollars, or four cents per share, a year ago, easily surpassing analysts’ forecasts, but revenue dropped by double digits as the company’s turnaround strategy failed to lure back advertisers unnerved by the economic downturn, as the Internet company reported its third quarter results on Tuesday.
Yahoo Inc outwitted Wall Street’s expectations as spending by advertisers showed signs of life in the third quarter and as months of cost-cutting and restructuring boosted the Internet company’s bottom line.
Both the top and bottom line results exceeded analyst expectations, which called for revenue of $1.12 billion and earnings per share of 7 cents, according to Thomson Financial Network. Investors applauded the news, sending shares up more than 6 percent in after-hours trading. The stock had closed down for the day at $17.17.
“The theme for the third quarter was stabilization, as we witnessed strength in key areas of our business after two straight quarters of deceleration,” said Tim Morse, the company’s chief financial officer, on an investor conference call. “Ad spending is beginning to free up, and we are a great proposition for big advertisers.”
The figures were welcomed enthusiastically by Yahoo’s chief executive, Carol Bartz, who considered them up as evidence that the company has turned a corner after a tumultuous period of management upheaval and dwindling earnings while Yahoo faced constant unflattering comparisons with its larger rival Google.
“We have a solid third quarter that signals our major businesses have stabilized,” said Bartz.
Carol Bartz, who took the company helm in January, relieving co-founder Jerry Yang after a tumultuous 17 months strongly characterized by Microsoft Corp.’s failed takeover bid. She quickly kicked off a company-wide restructuring. Yahoo over-hauled management, cut hundreds of additional jobs, shed unpopular products, redesigned its home page, announced plans to outsource its core search technology to Microsoft, and added a series of features promising to personalize the consumer experience.
She cited a brand revitalization, expansion in the Middle East and a new home page as evidence Yahoo has turned a corner: “Our execution is improving and we are focused on what we do best: being the center of peoples’ online lives.”
The company started a more than $100 million worldwide marketing campaign last month to drive awareness of the changes and reclaim some of the Internet pioneer’s luster.
Analysts were looking to Tuesday’s announcement as a yardstick of Bartz’s turnaround efforts, said Trip Chowdhry, managing director at Global Equities Research.
“Are things better than nine months back? The answer is yes,” he said. “But the work is not over. There is a lot of work to be done to clean up the biggest issues.”
Yahoo has cut some 2,000 personnel in an effort to dig itself out from a slump in fortunes. After fending off a 2007 takeover attempt by Microsoft, the company struck a partnership in online searches with the Seattle-based firm, which was viewed as an admission that it could not close the gap with Google independently.
Bartz has become frustrated with parallels drawn between Yahoo and Google. She recently told reporters that she was “pissed off” with media cynicism about her company’s prospects.
But apparently not as much so as the company’s Silicon Valley neighbor and nemesis Google Inc., which said last week that revenue and net income leaped 7 percent and 27 percent, respectively, from a year earlier. Chief Executive Eric Schmidt declared the “worst of the recession is behind us” and announced plans to invest heavily in innovation and acquisitions.
Yahoo’s revenue from display advertising was much better than anticipated, said RBC Capital Markets analyst Ross Sandler, citing the 2 percent sequential increase in U.S. display ad sales.
“That basically says that large Fortune 500 advertisers who want high-quality, premium inventory are going back to Yahoo more in the third quarter than they were in the first or second,” he said.
Shares of Yahoo, the top U.S. seller of online display ads but a distant No. 2 to Google Inc in search, jumped 5 percent after the results, which analysts said boded well for the fourth quarter, when ad spending should improve further.