Yahoo! Edges Expectations

Internet investors can start breathing again. Industry bellwether Yahoo late Tuesday reported third quarter earnings that exceeded analyst expectations — by one cent per share.

Yahoo said net revenues for the third quarter were $295.5 million, up from $155.8 million for the same quarter a year ago, a 90 percent increase. Pro forma net income for the quarter was $81 million — about 13 cents per share diluted. Wall Street had forecast 12 cents per share.

The gain compares to pro forma net income of $38.4 million, or six cents per share diluted, for the same period a year ago. Including acquisition-related charges, amortization of intangibles and stock compensation, and employer payroll taxes on non-qualified options, net income for the third quarter was $47.6 million — about eight cents per share diluted — as opposed to a net income of $11 million — about two cents per share diluted — in the same period last year.

“The global Yahoo franchise is stronger today than ever before, and this is reflected in our performance this quarter — our 16th consecutive quarter of profitability on a pro forma basis before acquisitions,” said Tim Koogle, chairman and chief executive officer of Yahoo. “Once again, we exceeded expectations for financial performance by posting record revenues, operating profit and cash flow. We made significant progress in all areas of strategic focus and extended our services to more of the world’s largest advertisers. Going forward, we remain focused on extending our strong leadership position and capturing market share through our key growth areas.”

The entire Internet advertising industry — and those dependent upon it — have been anxiously awaiting Yahoo’s announcement. Yahoo has an audience of 156 million and a respected management team which makes it the most visible indicator of the success of online advertising. Industry watchers have been especially anxious as third quarter earnings warnings from tech companies in other sectors — notably Apple Computer, Intel Corp. and Dell Computer — have taken investors for a bumpy and mostly downhill ride.

And Yahoo too has been on a bit of a roller coaster. In the last few weeks the stock fell below the $100 mark for the first time in nearly a year, bottoming out at a 52 week low of $75.13 on Monday (it was up to about $82.68 by close Tuesday).

Much of the blame can be placed on the softness of the online advertising market which has plagued the entire industry. And while Yahoo did manage to hit what analysts call the “whisper” numbers, advertising was not as robust in the third quarter as Wall Street would have liked. The number of advertisers actually decreased from 3,675 to 3,450.

“We’re looking for signs that Yahoo is vulnerable to the softness in the advertising market,” said Holly Becker, an analyst with Lehman Brothers, in an appearance on CNBC. The results were generally in line; however, the analyst added “it was not a blow-out by any means.”

Yahoo page views hit 780 million in September, up from 680 million in June, a 15 percent increase.

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