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Yahoo’s (YHOO) third-quarter earnings report offers a mixed picture of the company’s condition: much better than feared, but still not good enough to launch it back into the vanguard of Internet giants.
Revenue in the quarter ended Sept. 30 rose 3 percent from the second quarter and rose 14 percent from the same quarter a year earlier. Still, the $1.28 billion in revenue (excluding traffic acquisition costs) were well above the $1.24 billion expected from analysts.
Same with the bottom line: Net profit was 11 cents a share, unchanged from the 11 cents of a year ago but significantly above the grim 8 cents a share that analysts had been expecting.
Yahoo’s stock is up more than 10 pecent in the wake of its earnings report at $29.48, its highest level in more than five months. In the past, the company has been seen as a bellwether for tech earnings because it’s usually among first in the queue. If the post-earnings rally in Yahoo — together with strong numbers from Seagate (STX) and Intel (INTC) — are any indication, tech stocks could have a good month in October.
There was lots of talk on the call about Yahoo being more open to developers and focusing on things that work, like Yahoo Finance, over things that don’t, like premium music services. But everyone seemed to focus on the 20% rise on year in search revenue globally (30% on its own sites), a reversal from the 5% drop in the second quarter. Some analysts had been looking for a 9% drop in search revenue.
Yahoo president Sue Decker said nearly all global advertisers have been migrated to the
One interesting insight lies a little deeper in the numbers. Yahoo’s operating cash flow fell in the quarter, to $466 million from $474 million in the previous quarter, and also $474 million in the same quarter a year earlier. Revenue ex-TAC rose 14%, but sales and marketing and administrative costs rose 24% while product development rose 36% – suggesting Yahoo needs to trim some more costs ahead.
The deterioration in operating cash flow is coming from its home market: It fell 7 percent in the
Also notable is the guidance Yahoo offered for the full year. It had forecast revenue to be in a broad range between $4.89 billion and $5.19 billion. Now it’s narrowed it down, focusing it in the higher half of that range, while shaving some off the top estimate: Revenue is now expected between $5.02 billion and $5.16 billion.
Again, a similar narrowing is happening with operating cash flow. The old range was between $1.78 billion and $1.96 billion. Now it’s between $1.88 billion and $1.95 billion.
Narrowing these guidance targets isn’t uncommon as the year end draws nearer. But given all the uncertainty at Yahoo during a tumultuous rejiggering of the company, it’s encouraging to see Yahoo bring more precision to its financial goals, and to see it coming in at the higher end of earlier guidance.
While not the home run that a slugger like Google is used to delivering (and may well deliver again on Thursday afternoon), the Yahoo third-quarter earnings is a solid base hit from a company that badly needed one. Yahoo is back in the game, and investors will be more inclined to give it the time to increase its performance.