# Yahoo Earnings: Few Surprises, Even Less Clarity

This is what it’s like for Yahoo these days: Trying to feel pretty good about meeting already lowered expectations. And then lowering future expectations even further.

Yahoo’s earnings per share for the quarter through June came in at 11 cents, in line with the consensus that Wall Street had set for the company. Three months ago, those analysts had been forecasting a 12 cent profit, so Yahoo jumped over the high bar only because it had been recently lowered for it.

Elsewhere in the financials, the numbers were hardly more spectacular. Revenue grew 8% in the quarter from the same quarter a year earlier, and only 2% from the first quarter of 2007, traditionally a sleepy one for Internet companies.

Operating cash flow, considered by some to be the best single yardstick of a company’s operational health, was $474 million, up marginally from the year ago quarter, but equal to only 38% of revenue (versus 41% a year ago). So Yahoo is generating more money, which is good, but it’s a smaller portion of the money it’s bringing in, which is not so good. On top of that, Yahoo says its full-year numbers will probably be lower than most of the research community had been looking for. Revenue (excluding revenue shared with partners, or so-called traffic acquisition costs) will come in between$4.89 billion and $5.19 billion, down from its previous forecast of$4.95 billion and $5.45 billion. Analysts had been expecting$5.19 billion, which is now at the high end of Yahoo’s own forecast, so you can imagine there will be some revising of spreadsheets this evening on Wall Street.

And yet no one seems to be acting like this is a big surprise. Yahoo’s stock rose a little more than 3% in the last couple of hours of trading Tuesday, likely on last-minute hopes for a strong quarter, but following the earnings report and the conference call, it’s fallen nearly 4% in after-hours trading. Overall, the stock is pretty much unchanged from this morning.

This was the quarter when Panama – Yahoo’s answer to Google’s ass-kicking search algorithms – was supposed to start to kick in. Yahoo is shy about breaking out search and non-search numbers, but it’s clear Panama isn’t putting quite the wind into Yahoo’s sails that optimists had expected.

And yet it’s hard to say what it all means for Yahoo, mainly because of all the uncertainties that lie ahead. Not only will Panama continue to prove itself through the rest of the year, but more importantly, a new and unproven management team is steering the company in the post-Semel era.

Whether that team, now led by CEO and co-founder Jerry Yang and President Susan Decker, gets Yahoo back into the groove that, only a few short years ago, cause its stock to rise several times over; or whether they are led to sell the company remains an open question, but a significant one for investors.

Unfortunately for investors who like a little certainty in their portfolios, Yahoo will have little to offer in coming weeks, even months. Any turnaround will be slow, and it may be we see another less-than-remarkable quarter before Yang and Decker can be said to have turned things around.

If they don’t, a slumping stock will only raise the chances of a buyout.