Yahoo: Microhoo, Icahn drama cost us $22 million; Economy soft

The Carl Icahn proxy battle and Microsoft buyout drama appears to have been a slight distraction for Yahoo, which is seeing slowing display ad demand amid a weak economy. Yahoo on Tuesday reported second quarter net income of $131 million, or 9 cents a share, on revenue of $1.

The Carl Icahn proxy battle and Microsoft buyout drama appears to have been a slight distraction for Yahoo, which is seeing slowing display ad demand amid a weak economy.

Yahoo on Tuesday reported second quarter net income of $131 million, or 9 cents a share, on revenue of $1.35 billion excluding traffic acquisition costs (statement). Excluding items, Yahoo had earnings of $139 million, or 10 cents a share.

Estimates appear to be fluid, however. Factset Research had expected earnings of 10 cents a share with Thomson Financial projecting earnings of 12 cents a share. You can chalk the quarter up as a miss, but Wall Street is likely to cut Yahoo a break and focus on the ad outlook and the future without a pricey proxy fight to worry about.

On a conference call with analysts, CEO Jerry Yang said the end of the Icahn proxy battle "eliminates a distraction." Yang said he was impressed with the company's ability to perform given the Microsoft-buyout saga and the Icahn flap. "We delivered two quarters in line with our strategic plan," said Yang.

Yang also noted that Yahoo is open to shareholder value enhancing deals. He also touted Yahoo's page view growth, a growing user base and the company's ad network. He did note that the economy is becoming a display ad headwind. "In some categories we saw demand for CPG (consumer packaged goods) and finance soften," said Yang. Executives also noted that travel and retail ads were also weak.

Sue Decker, president of Yahoo, touted the company's search enhancements, efforts like BOSS and SearchMonkey to show it has the capital and chops to compete. She added that search revenue should accelerate in the second half of the year. Meanwhile, CFO Blake Jorgensen chalked the quarter up as a win and noted that Yahoo's business model held up well in a weak economy.

In addition, Yahoo said that it expects its Google search deal, which is at the halfway point of the Department of Justice's review, to begin in the fourth quarter.

As for the outlook, Yahoo projected revenue for the third quarter of $1.78 billion to $1.98 billion with income from operations of $65 billion to $85 billion. For 2008, Yahoo is projecting revenue of $7.35 billion to $7.85 billion. The revenue outlook doesn't exclude traffic acquisition costs.

But so far Yahoo's business is flattish.

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By the numbers:

  • Marketing services revenue was $1.58 billion, up 7 percent from a year ago. The split for marketing services revenue is $1.02 billion for owned and operated sites with the remainder accounting for affiliates.
  • Revenue excluding TAC was up 8 percent from a year ago.
  • Operating income was down 45 percent to $101 billion. Yahoo said it spent $22 million on advisors related to Microsoft's proposal to buy all or part of the company as well as the Icahn proxy fight.

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  • U.S. revenue was $1.26 billion, up 13 percent from a year ago. International revenue was down 8 percent to $534 million.

In a statement, Yahoo execs touted its open platform strategy as well as its deal with Google. CBS' CNET, parent of ZDNet, is also a Yahoo partner.

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