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Yahoo’s chief executive has warned investors to expect a steep decline in the company’s business since she took the job in January 2009. Carol Bartz called Yahoo’s results “a solid third quarter” recently, but industry analysts were less impressed with its recovery. The company has cut costs since Bartz became boss and sold some of the company’s assets, but the biggest revenue gains by far have come from better-than-expected cash flow from the company’s display ads. Those three factors led to a tripling of Yahoo’s net income for the third quarter of 2009, much better than industry analysts had predicted.
The positive income report sent shares of Yahoo’s stock sharply higher in after-hours trading. However, the company reported that its revenue dropped 12 percent during the quarter, an indication that many advertisers are skittish about the pace of the country’s economic recovery. An interpretation of the drop in revenue was that Yahoo did not benefit from the nascent economic turnaround as much as its chief rival, Google, did. Some analysts said that the results were encouraging, but tempered their optimism by saying that Ms. Bartz’s plans for recovery remained a work in progress.
“The patient is off life support and back in the recovery ward,” said an analyst with Sanford C. Bernstein & Company. “But it is certainly not out playing soccer again.”
Yahoo executives called the results a relative success given the company’s recent revenue problems. The company reported that revenue fell to $1.57 billion from $1.79 billion a year ago. The company’s net revenue, which excludes commissions paid to advertising partners, was $1.13 billion, down from $1.32 billion. Yahoo’s net income was $186 million, or 13 cents a share, up sharply from $54 million or 4 cents a share a year ago, an increase of 244 percent. Industry analysts on Wall Street expected that Yahoo would earn a much more modest 7 cents a share.
Google reported that its revenue for the same quarter grew by 7 percent. In the past, Ms. Bartz has taken issue with comparisons of her company with Google, claiming the companies serve two different markets. The vast majority of Google’s revenue comes from pay-per-click ads and other types of text ads not affected much by the current recession. The foundation of Yahoo’s business is a mix of search and display advertising generally regarded as a better indicator of the overall health of the Internet advertising market.
Despite positive economic indicators for the company, some analysts expressed concern about Yahoo’s moribund search business. In sharp contrast to Google’s relatively strong growth in revenue from search ads, Yahoo’s revenue from search ads on its own sites was down 19 percent from last year.
“Something isn’t working right in their search business,” said an analyst with Thomas Weisel Partners. He said that if Yahoo’s search business continued to erode, Yahoo’s plans for a turnaround could be derailed.