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Yahoo Profit Soars as Microsoft Looms

Yahoo's Jerry Yang
Yahoo CEO Jerry Yang Source: Reuters
Yahoo (NASDAQ: YHOO) posted a better-than-expected quarterly profit on Tuesday but failed to do well enough to convince many on Wall Street that Microsoft (NASDAQ: MSFT) needs to raise its takeover bid.

Yahoo left its revenue outlook for the year unchanged, and its shares ticked down half a percent in extended trading.

"Microsoft is breathing a sigh of relief," said Jim Friedland, analyst at Cowen & Co. "Even though these are solid results, given long- and short-term challenges, there's been no overall shift in Yahoo's business."

"Microsoft's offer is still the best offer on the table," he said, adding that the software maker could "modestly raise" its $43 billion cash-and-share bid just to close the deal.

Mike Binger, fund manager at Thrivent Financial, which owns shares in both Microsoft and Yahoo, said: "I would say at this point Microsoft would stay their bid."

Buoyed by a large gain on a stake in China's Alibaba.com, Yahoo's first-quarter net income rose to $542.2 million, or 37 cents per diluted share, from the year-ago quarter's $142.4 million, or 10 cents per diluted share.

Excluding one-time items and stock compensation costs, the beleaguered Internet company reported a profit of $150 million, or 11 cents per share.

On that basis, Wall Street on average was looking for a profit of 9 cents per share, according to Reuters Estimates.

Chief Financial Officer Blake Jorgensen made a point of saying the company's results were "right on track," despite having to deal with the distraction of Microsoft's offer.

"We are not opposed to a deal with Microsoft," Jorgensen told Reuters in an interview. "What we are opposed to is seeing it at a value that discounts the underlying value of the company."

First-quarter revenue rose 9 percent to $1.82 billion. Excluding payments to advertising affiliates, or traffic acquisition costs (TAC), revenue rose 14 percent to $1.35 billion. Yahoo kept its 2008 total revenue forecast at $7.2 billion to $8.0 billion, unchanged from the outlook it gave in January, but it did not comment on revenue excluding TAC, which is the figure Wall Street focuses on.

Yahoo shares fell in extended trade to $28.39 from a NASDAQ close of $28.54. Microsoft shares rose to $30.41 from a close of $30.25.