Yahoo 1Q profit rises
SAN FRANCISCO (AP) - April 23, 2008 By delivering earnings and revenue Tuesday that surpassed
analysts' estimates, Yahoo added credence to its board's contention
that the Sunnyvale-based company is poised for a dramatic
turnaround that justifies a higher sales price than Microsoft's
initial bid of $44.6 billion, or $31 per share.
But neither the first-quarter results nor Yahoo's outlook for
the rest of the year may be compelling enough to cause Microsoft to
sweeten its offer.
"This isn't going to make Microsoft come and out offer $35,"
predicted Canaccord Adams analyst Colin Gillis.
That leaves the rivals at an impasse, just as they have been
since Microsoft stunned Yahoo with its unsolicited takeover attempt
nearly three months ago.
"This doesn't change the picture much at all," Susquehanna
Financial Group analyst Marianne Wolk said.
Investors didn't find much to get excited about. Yahoo shares
shed 15 cents in Tuesday's extended trading after dipping a penny
to $28.54 in the regular session.
It now appears more likely the standoff between Yahoo and
Microsoft will be resolved in a divisive battle that could drag on
into the summer, opening the door for Internet search and
advertising leader Google Inc. to grow even stronger while the
other two companies are distracted by their duel.
"If you want to make money off this (stalemate), buy Google,"
said Global Crown Capital analyst Martin Pyykkonen.
Microsoft has threatened to oust Yahoo's board if the 10
directors don't accept the current offer Saturday. That risky
course of action, known as a proxy contest, probably wouldn't be
settled until Yahoo's shareholder meeting, which doesn't have to be
held until July.
The cash-and-stock bid is now worth about $43 billion, or $29.88
per share.
Steve Ballmer, Microsoft's chief executive officer, reiterated
the software maker has no plans to sweeten its offer. "We think we
can accelerate our strategy by buying Yahoo and will pay what makes
sense for our shareholders," Ballmer said in remarks made before
Yahoo's first-quarter report came out.
Jerry Yang, Yahoo's co-founder, CEO and a board member, made it
clear the company won't sell to Microsoft unless the bid is raised.
"Our ability to execute on multiple fronts is clearly improving,"
he told analysts in a Tuesday conference call.
Yahoo said it earned $542.2 million, or 37 cents per share,
during the first three months of the year, more than triple its
profit of $142.4 million, or 10 cents per share, to begin 2007.
Most of the first-quarter improvement stemmed from a non-cash
gain of $401 million recorded to recognize Yahoo's stake in the
parent company of Alibaba.com, a leading e-commerce site in China
that went public last year.
If not for the Alibaba windfall, Yahoo would have earned 11
cents per share - comparable to its profit at the same time last
year, on an apples-to-apples basis.
On that basis, the earnings were 2 cents better than the average
estimate among analysts surveyed by Thomson Financial.
Perhaps even more importantly, Yahoo provided the same full-year
revenue outlook that it made in late January - just two days before
Microsoft made its unsolicited bid.
Yahoo's first-quarter revenue climbed 9 percent to $1.82
billion.
After subtracting commissions Yahoo paid its advertising
partners, its revenue totaled $1.35 billion - just $30 million
ahead of analysts' average projection.
The first-quarter numbers provided a reminder of the
ever-widening gap separating Yahoo from Google, whose profit during
the same period climbed 30 percent to $1.3 billion on revenue that
rose 42 percent to $5.2 billion.
Yahoo expects its revenue to increase more dramatically in 2009
and 2010 as the benefits from its expanded Internet advertising
network start to kick in.
"We feel we are on the verge of fundamentally changing the
game," Sue Decker, Yahoo's president, said in Tuesday's conference
call.
An experimental advertising partnership with Google also could
help boost Yahoo's profit. Yang and Decker to declined to discuss
the Google tests, which began two weeks ago.
Analysts believe a long-term partnership between Yahoo and
Google would be difficult to pull off because of the antitrust
concerns that would raised, given that the two companies control
more than 80 percent of the U.S. search market.
Yahoo also has been exploring a possible merger with the
Internet operations of Time Warner Inc.'s AOL, which has been
struggling in recent years.
"We will not enter into any transaction that doesn't recognize
the full value of this company," Yang said.
Given the Microsoft bid, Pyykkonen said Yahoo's optimism should
be taken with a grain of salt. "You almost have to discount
anything positive management has to say because they are just
trying to get the (sale) price up," he said.
But Microsoft's bid could rise above its original value even
without management upping the ante if Microsoft's own quarterly
earnings report - due out Thursday - pushes its shares above
$32.60.
Microsoft's stock price finished Tuesday at $30.25, down 17
cents.
Many analysts believe Microsoft will raise its offer to between
$32 and $35 per share, or about $46 billion to $50 billion, to
prevent its prickly courtship of Yahoo from becoming even more
acrimonious.