Yahoo Q3 2011 Earnings: Search Revenues Fall 13%

Yahoo LogoYahoo needed some good earnings news to fend off the jackals. The street had marked Yahoo as takeover meat, with Alibaba CEO Jack Ma bragging to news media that he has the cash to do it. The third quarter results it reported yesterday were so-so but the Internet giant’s revenue, operating income and earnings per share all exceeded analysts’ consensus.

Revenue of $1.1 million amounted to 1 percent growth year over year, excluding special items. Earnings per share were $0.23, up 32 percent. Operating income of $177 million exceeded the high end of guidance.

There’s only one problem. Yahoo continues to position itself as a media company, but display ad revenue during third quarter was flat at $449 million. Net earnings were down 26 percent.

On the earnings conference call, Tim Morse, CFO and interim CEO, said, “I feel good about both [premium and non-premium] ads.” In working with ad agencies, “We know we have to be easier to do business with and more flexible.”

Meanwhile, on the non-premium ad side, the increase in minutes spent on the site is attributable to the rollout of the new mail product, he said. “We designed it to improve engagement and it’s working.”

Morse acknowledged fragmentation in the non-premium ad inventory that’s not propped up by Microsoft. He said the company plans to increase impressions per page view by tweaking platforms and doing a better job of packaging ad solutions and programming. It also aims to improve its RMX auction technology.

Search revenue was $374 million, a 13 percent decrease from the previous quarter. In the United States, query volume and revenue per search were both up slightly; worldwide, query volume was down but revenue per search was up.

Search revenue was bolstered by the fact that Microsoft reimbursed Yahoo for its entire $53 million search operating cost and $4 million in transition cost, as part of the companies’ search agreement.

Yahoo touted recent content and technology innovations, including a strategic alliance with ABC News and investments in premium video programming. It also is going after exclusive content such as a recent Hispanic-focused online roundtable with President Barack Obama.

Morse said Yahoo will continue to seek new content partnerships. “A lot of partnerships are revenue share, but it’s incremental revenue at a substantial margin.”

Last quarter, the company’s net revenues dipped 5 percent. The company reported revenues of $1.1 billion for the three months ending June 30, excluding traffic acquisition costs, down from $1.13 billion in Q2 2010.

Then-CEO Carol Bartz said the Q2 ding was the result of turmoil among the sales force and leadership.

The turmoil continues. Bartz was unceremoniously ousted in September, and CTO Raymie Stata is stepping down as CTO, although he’ll remain with the company as entrepreneur in residence. Stata will be replaced by Ash Munshi, formerly founder and CEO of Terabitz, maker of a web platform for real estate brokerages. He moved to Terabitz from the CEO position at Level5 Networks, a provider of Ethernet network interface cards.

Morse declined to answer questions about when the board would find a new CEO, nor why Bartz was fired when the company’s performance was exceeding expectations.

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