Yahoo beats expectations, can't shift MS

23-04-2008

by Ciara O'Brien

Yahoo breezed past analysts' expectations with results for its first quarter of 2008, but it may not be enough to ward off Microsoft's threat of a hostile bid.

Revenues were USD1.89 billion for the first quarter of 2008, rising 9 percent compared to the same period a year earlier when revenues reached USD1.67 billion. Analysts had been expecting an average of USD1.32 billion in revenue.

Net income for the three-month period more than tripled to USD542 million, or USD0.37 per diluted share, compared to USD142 million, or USD0.10 per diluted share, for the same period of 2007. This included a non-cash gain of USD401 million from Alibaba Group's initial public offering of Alibaba.com. Yahoo has a 40 percent stake in the Chinese e-commerce firm, which it secured back in 2005.

Excluding that once-off gain, net income was USD0.11 per share, better than Wall Street's estimates of USD0.09 per share.

Overall revenue within Yahoo's marketing services was up 7 percent to USD1.5 billion year-on-year, with owned and operated sites doing better than affiliate sites. Revenues from Yahoo's own sites rose 18 percent to USD966 million for the first quarter of 2008, while affiliate sites saw a revenue drop of 7 percent year-on-year to USD606 million.

Revenues excluding traffic acquisition costs totalled USD1.35 billion for the quarter, 14 percent higher than the USD1.18 million recorded in the same period of 2007.

The company was suitably upbeat about the financial results. "We believe we can significantly accelerate our revenue growth, return to our historically high margins, and double our operating cash flow by 2010. This quarter's solid performance underscores the fact that we are executing on that plan. Yahoo is beginning to realise the benefits of the very substantial and deliberate long-term investments we've made to capitalise on the opportunities ahead in display and to recapture momentum in search," said Jerry Yang, co-founder and chief executive officer, Yahoo.

"Not only does Yahoo have a unique franchise, it increasingly has industry-leading tools, technology and, most importantly, people. It is the hard work, dedication and professionalism of our people that is our greatest asset -- and this quarter's performance demonstrates how well they can perform under unusually challenging circumstances."

However, it's not yet clear if these results will be enough to shake off Microsoft, which is making a determined bid to buy the tech firm. Yahoo thinks that the USD31 per share bid Microsoft has already made for its business, now valued at more than USD43 billion, undervalues the firm, and has been trying to court interest from big players in the market, including News Corp and Time Warner.

While these results may further underpin Yahoo's self-belief, it seems Microsoft doesn't agree. Microsoft boss Steve Ballmer was already reported to have rubbished any idea that the company would raise its bid for Yahoo, saying that the results would not make any difference to the value of the search firm to Microsoft.

Yahoo has until Saturday to accept the bid, or else Microsoft will launch a hostile takeover. The quarterly results also include a USD14 million charge that was incurred in part by outside advisors related to Microsoft's unsolicited proposal.