Yahoo Q3 Revenue Down 5 Percent To $1.07B; Net Income Down 26 Percent To $293M

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Yahoo reported third quarter earnings today. Revenue excluding traffic acquisition costs (“revenue ex-TAC”) was $1.072 billion for the third quarter of 2011, a 5 percent decrease from the third quarter of 2010. Net earnings per diluted share decreased 21 percent to $0.23 in the third quarter of 2011, compared to $0.29 in the third quarter of 2010. Yahoo actually beat Wall Street expectations; analysts expected earnings of $0.17 a share, on revenue of $1.09 billion.

Net income for the quarter came in at $293 million, down 26 percent from the same quarter in 2010. Income from operations decreased 6 percent to $177 million in the third quarter of 2011, compared to $189 million in the third quarter of 2010. The year over year decreases were primarily due to the revenue share related to the Search Agreement with Microsoft. GAAP revenue was $1.217 billion for the third quarter of 2011, a 24 percent decrease from the third quarter of 2010, again primarily due to the Search Agreement and the associated revenue share with Microsoft.

“We’re pleased that revenue, operating income and EPS were all above consensus this quarter,” said Tim Morse, CFO and Interim CEO, Yahoo. “My focus, and that of the whole company, is to move the business forward with new technology, partnerships, products, and premium personalized content — all with an eye toward growing monetization.”

Ad revenue was down across the board for Yahoo. Display revenue ex-TAC was $449 million, compared to $448 million for the third quarter of 2010. GAAP display revenue was $502 million, a decrease of 2 percent, compared to $514 million for the third quarter of 2010. Search revenue ex-TAC was $374 million, a 13 percent decrease compared to $428 million for the third quarter of 2010. GAAP search revenue was $467 million, a 44 percent decrease compared to $839 million for the third quarter of 2010.

Revenue ex-TAC for the fourth quarter of 2011 is expected to be in the range of $1.12 billion to $1.2 billion.

Of course it’s important to note that the company is in a state of flux at the moment, following the departure of CEO Carol Bartz and facing reports of a possible takeover.

We’ll be listening to the earnings call and will update with any additional information.

Earnings Call

Morse says the key operating takeaway is that the company remains focused on Yahoo’s key strategies, which includes personalization and content. Alluding to the future of Yahoo, (perhaps under a new ownership or in a takeover), Morse said Yahoo’s board is looking to return the company to a path of “robust growth” and is evaluating all options but when that happens, the board will make an announcement. Today, he said, he will only discuss the company’s Q3 results.

Morse says that there are some encouraging signs for Yahoo’s ad business, including a number of campaigns for big brands. Yahoo’s new video destination, Yahoo Screen, is also seeing success, he says.

The Microsoft search-transition is expected to be completed by next month.

He says that Yahoo’s investment in Alibaba is worth $14 billion, pre-tax (Yahoo paid $1 billion for a majority stake six years ago).

“We know we have to be easier to do business with, we know we have to be more flexible,” says Morse, in regard to the company’s reorganization of its sales force.

“We can do a better job of programming, optimizing our products, increasing page views,” he adds.

“The board’s process is the board’s process,” he said referring to Carol Bartz’s quick exit from the company. The CEO search is under way, Morse explained, but declined to comment further. As for the timelines, “the board wants to do what’s best for the company and the timing will be what it will be.”

As for why Yahoo didn’t participate in the latest sale of Alibaba’s shares, Morse said Yahoo was left out of the process because it was an employee sale (vs. an investor sale).

In terms of product, he says that the company has a better product planning process and the engineering talent is helping to ‘refresh’ the way Yahoo launched products.