Yahoo Reports Higher Earnings on Microsoft Search Deal

Yahoo reported first quarter earnings more than doubled to $310.2 million, though a large part of that gain was due to reimbursements tied to its new search deal with Microsoft and the sale of its Zimbra e-mail and collaboration software business to VMware.

Yahoo’s overall revenues for the quarter were up only 1.1 percent to nearly $1.6 billion. But the Sunnyvale, CA-based company benefited from the first $78 million installment of its deal with Microsoft – $43 million for net transition cost reimbursements and $35 million for search operating cost reimbursements.

During a conference call with analysts to discuss the results, Yahoo executives stressed the positive, citing a 20 percent growth in display advertising that included 24 percent year-over-year growth in guaranteed display ads, adding the overall online advertising landscape is beginning to improve as the global economy recovers.

Even search, which has been a difficult category for the company for several years, seems to be stabilizing as Yahoo recorded a slight uptick in its search market share in March to 16.9 percent, according to comScore.

“For the past 18 to 24 months, we’ve had a tough row to hoe with search,” noted Yahoo! CEO Carol Bartz. “But we believe that search has hit bottom and will trend up in the second quarter.”

As Yahoo lays the groundwork for transitioning its entire algorithmic and paid search efforts to Microsoft’s Bing, Bartz stressed, “Our aim is a high quality transition starting in the U.S. prior to the 2010 holiday season. Both companies are engaged in this process and there’s a lot of work to do. We’ll only begin the transition when we’re absolutely ready.”

While its overall page views were flat compared with Q1 2009, Bartz noted the company is still in the early stages of a multi-year plan to improve the overall platform experience for consumers while at the same time providing better opportunities for advertisers.

“[Advertisers] want to shift more budget online, they want to stand out [and] be creative in how they reach consumers, and they want a Yahoo that meets their needs,” she told the analysts, highlighting as an example the success of a recent campaign from Walmart.

Bartz stressed the company’s commitment to increasing the amount of sponsored online videos, noting that a new offering in Yahoo News, the original program “Who Knew?”, was sponsored by Toyota and generated 1 million streams on only its second day. “Look for more of these original, low-cost video snacks in the future,” she said.

She also cited a deal with Major League Baseball to become the official MLB fantasy site and last month’s acquisition of Citizen Sports, which will broaden Yahoo’s efforts in mobile and social networking.

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