Yahoo: Earnings double but revenue is flat

Yahoo reported better-than-expected earnings for its third quarter today, but sales were in-line.

The company reported net income of $396 million, up from $186 million in the year-ago quarter, or 29 cents per share, a 126 percent gain. Revenue, excluding traffic acquisition costs, was $1.13 billion. Wall Street had been expecting earnings of 15 cents per share on revenue of $1.13 billion. (Statement)

CEO Carol Bartz said in a statement that the quarter saw revenue growth in display advertising and "big gains" in operating income. She also said that the company "dramatically stepped up" its stock repurchases, noting that more than 7 percent of the company's stock has been bought back this year. She said:

We’ve made substantial progress this year toward executing our strategies for enhancing profitability and resuming revenue growth. Margins are expanding; owned and operated display advertising is up 18 percent so far this year; product rollouts are accelerating thanks to modernization of our underlying platforms; and we continue to implement our search alliance with Microsoft on schedule. We've disposed of non-core assets while making strategic acquisitions like Associated Content and Citizen Sports, and we’ve developed key partnerships with Facebook, Twitter, and Zynga to enhance the Yahoo! experience for our 600 million users.

Still, there's a big cloud of uncertainty hovering over the company, following reports that AOL and private investors may be considering a bid to buy Yahoo. Adding to that chatter were more reports that Yahoo has hired Goldman Sachs to handle takeover approaches.

On a call with analysts this afternoon. Bartz reiterated that the goals for the company are to grow revenue and increase profitability. She went to great lengths to recap the 21 months since she first arrived at Yahoo and the changes that would need to take place to meet those goals. To grow revenue, the company needed to grow users and engagement - and work to reverse a years-long trend of decelerating growth. "We had to make a series of substantial changes," she said, noting that that includes breaking down silos, eliminating redundancy, reducing costs and fixing the infrastructure platforms.

That's all been going on since she arrived, she said, and the company is making progress. The company cut a deal with Microsoft on search, the apps platform has been revamped, businesses that did not fit in with the company's vision were divested while others that did fit were acquired, and the data has been pulled out of silos to create a more personalized experience for users and advertisers, she said.

But to grow revenue and increase profitability, you have do so in a sequential way. "First you walk, then you run, then you fly," she said. Once a few more things are completed, such as the transition to Microsoft's adCenter platform in the U.S. and Canada, "then we can really fly."

Looking ahead, the company forecast fourth-quarter revenue, excluding traffic acquisition costs, of $1.125 billion to $1.225 billion but had caveats to that transition to adCenter. Here's the official disclosure:

Revenue excluding traffic acquisition costs (Revenue ex-TAC) for the fourth quarter of 2010 is expected to be in the range of $1,125 million to $1,225 million. This business outlook assumes the paid search transition to Microsoft’s adCenter platform in the U.S. and Canada will be completed by the end of October. Based on the terms of the Search Agreement with Microsoft, Microsoft is entitled to a revenue share of 12 percent of the net (after TAC) search revenue generated on Yahoo!’s Owned and Operated and Affiliate sites in transitioned markets. As required under GAAP, Yahoo! will report the net revenue it receives under the Search Agreement as GAAP revenue and will no longer present associated TAC as part of our financial results. Accordingly, for transitioned markets Yahoo! will report GAAP revenue associated with the Search Agreement on a net (after TAC) basis rather than a gross basis. Microsoft’s revenue share in the fourth quarter of 2010 is expected to be approximately $30 million. GAAP revenue for the fourth quarter of 2010 is expected to be in the range of $1,400 million to $1,530 million. Total expenses (cost of revenue plus total operating expenses) for the fourth quarter of 2010 is expected to be in the range of $1,200 million to $1,250 million. Total expenses less TAC for the fourth quarter of 2010 is expected to be in the range of $925 million to $945 million. Income from operations for the fourth quarter of 2010 is expected to be in the range of $200 million to $280 million.

Yahoo executives will host a conference call with analysts to discuss the quarterly results. We'll update this post with details.

Shares of Yahoo were down about two percent in regular trading, closing at $15.49. Shares were down slightly in after-hours trading.