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Yahoo Earnings Beat the Street as Revenue Wanes

Yahoo earnings
Yahoo (NASDAQ: YHOO) reported second-quarter profits this afternoon slightly ahead of analysts' expectations, earnings of $0.10 per share, beating the Street's consensus of $0.08 per share, according to polling by Thomson Reuters. Per-share earnings inched up from the year-earlier mark of $0.09.

Yahoo posted $1.57 billion in revenue for the quarter, a 13 percent drop from last year.

"I'm pleased with our results this past quarter. We established a clear, simple vision to be the center of people's lives online, and we're backing that vision with important initiatives to create 'wow' experiences for our users," CEO Carol Bartz said in a statement. "We're confident that this vision will put us on the right path to growth and profitability long term."

Looking ahead to the third quarter, Yahoo offered revenue guidance in the range of $1.45 billion to $1.55 billion.

Given the sustained weakness in the advertising economy, analysts weren't looking for Yahoo to turn in a barnburner of a quarter. Of greater concern than the numbers is Yahoo's vision for a turnaround, and tangible signs that it is beginning to execute on that vision.

"Execution, execution, execution," Broadpoint AmTech analyst Benjamin Schacter wrote in a recent research note. "The pressure is now on Bartz and her team to show they can execute better than those before them."

That team now includes Tim Morse, who previously served as CFO for Altera, a semiconductor industry supplier. Morse stepped in as Yahoo's CFO in June, filling a spot that had been vacant for three months following the exit of Blake Jorgensen.

Analysts praised the selection of Morse, who has a reputation as an aggressive cost cutter.

On a conference call with analysts, Bartz offered a simple, if ambitious, conception for the company she wants Yahoo to become.

"As we took a step back to look at our priorities and define what Yahoo is, it became very clear," Bartz said. "Our vision, quite simply, is to strive to be the center of people's online lives."

Trimming expenses has been a major initiative of the early months of the Bartz regime, as the company continued staff reductions, pruning its about 5 percent of its workforce, or 700 workers, in the second quarter.

But Yahoo is actually planning to start hiring again, building out its engineering and sales teams.

Bartz said that the company is also planning a concerted effort to reduce the appearance "irritating and high-frequency ads," which can frustrate users, with the effect of "cheapening our brand."

"Dealing with these ads will be a high priority for us," she said.

Yahoo today also announced a deal with AT&T, where the telecom giant will provide sales representatives to sell locally-targeted ads on Yahoo's sites.

Building on the local Yahoo's Newspaper Consortium, Bartz said "we now have a local sales force 13,000 reps strong."

As for the execution, Yahoo surprised analysts by rolling out a long-awaited home page redesign today, a move that industry watchers hadn't expected to see until the fall.

The new home page, available to a select group of beta testers, may be one of Yahoo's most significant leaps into the Web 2.0 era. The roll-out features more than 60 ready-made widgets that can sync up content from other sites on the Web, such as Facebook and MySpace, with many more under development.

"This launch represents the most significant change to our home page since the company's inception," Bartz said. "This home page redesign is the best example yet of how our open strategy will benefit our users."

Yahoo is planning a similar overhaul of its search page.

Yahoo has been demoing plans for its new home page around Wall Street for some time, and analysts have given it early praise, both for its "stickiness" and the prospects for increased ad revenue from better targeting and increased inventory.

"Our new homepage is a perfect example of our efforts to create innovative products aimed at increasing user engagement while offering the most compelling advertising proposition in the industry," Bartz said.

Of course, the specter of consummating the long-deferred deal with Microsoft could do more than anything to give Yahoo a jolt in the eyes of investors.

In search, Yahoo and Microsoft both lag well behind Google (NASDAQ: GOOG) in terms of market share. By the most recent comScore figures, Google performed 65 percent of U.S. search queries, compared to Yahoo's 19.6 percent share and Microsoft, a distant third with an 8.4 percent share.

A tie-up between Yahoo and Microsoft would likely see the software giant shell out more than $1 billion up front for Yahoo's search business, and then pay out a set share of revenue for a certain period of time.

Bartz has previously made it clear that she is not inclined to field questions about deal talks, and the subject of a Microsoft partnership did not come up on today's call.

At one point, when asked about "inorganic" growth of the business, Morse said, "Who knows what events bring and what deals come our way."

Update adds comments from conference call with analysts.