Yahoo! tops 3Q expectations

Shares of Yahoo! fell in afterhours trading after the Web portal operator reported better-than-expected third quarter results and said its reliance on dot-com companies is falling.

After market close Tuesday, Yahoo! reported third quarter net income of $81.1m, or 13 cents per share, excluding special charges. First Call's survey of 31 analysts predicted a profit of a dozen cents per share.

Shares of Yahoo! initially rose to 86.5 in afterhours activity on the Island electronic communications network, immediately following the release of third quarter results. But following the company's conference call with analysts, the stock fell to 76.75 on Island volume of more than 1.1 million shares.

Yahoo! stock closed Tuesday's regular trading at 82.6875, down 3.0625 for the session.

Revenue in the third quarter increased 90 percent year-over-year to $295.5m, higher than most expectations. Analysts generally predicted third quarter sales of $280m to $290m, and had expected any better-than-forecast earnings to be fueled by margin improvements.

Investors have been worried about Yahoo!'s advertising revenue in the wake of dot-com failures, but Internet-only companies fell as a percentage of Yahoo!'s sales, company executives told analysts. Pure Internet firms generated slightly more than 40 percent of third quarter, down from 47 percent in the second quarter, executives said.

"Right now, I like the mix of traditional [companies], traditionals with an Internet arm to their business and are plugged into what's happening, and the healthy Internet companies that are standalone," said Jeff Mallett, president and chief operating officer.

Yahoo!'s business from "financially questionable" companies, which was less than ten percent in the second quarter, continued to fall sequentially, chief financial officer Susan Decker said.

"Many of our marketing partners are in businesses that are flourishing, in many cases, because of the opportunities brought by the Internet," she said.

Yahoo!'s top 200 clients made up about 60 percent of the company's revenue in the third quarter, with longer contracts that help offset a "modest" decrease in total advertisers and merchants to 3,450, executives said. Deferred revenue is growing faster than reported revenue, Decker said.

About 13 percent of Yahoo!'s revenue came from outside the United States, company officials said.

The company cited Nielsen//NetRatings statistics that showed Yahoo! with the leading reach among work users and second among home users. Yahoo!'s audience covered 166 million users in September. Average daily page views rose in September to 780 million page views, a 14.7 percent improvement from June.

Third quarter ransactions for Yahoo's shopping and stores increased 300 percent year-over-year. Auctions rose 400 percent over the same period, the company said.

Including amortisation, acquisition-related charges and taxes on non-qualified stock options, Yahoo earned $47.7m, or 8 cents per share.

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