Yahoo had 13,000 employees at the end of the second quarter of 2009, down from 14,300 a year ago. (Associated Press)Yahoo reported an eight per cent increase in second-quarter profit late Tuesday, the company's first quarterly earnings improvement since the start of 2008.
Yahoo shares nevertheless slid 45 cents, or 2.7 per cent, to $16.30 US in Tuesday's extended trading, as investors fretted more about what might happen in Yahoo's third quarter after CEO Carol Bartz outlined a plan to spend more money strengthening the company's brand.
The Sunnyvale, Calif.-based internet company wouldn't have boosted its second-quarter profit if not for layoffs and other cost cutting that pared Yahoo's operating expenses by nearly $150 million US, or 15 per cent, from last year. The savings enabled Yahoo to shake off the biggest drop in its ad revenue since the dot-com bust at the beginning of the decade.
But Bartz raised questions about whether the earnings momentum will continue by vowing to spend at least $75 million more promoting Yahoo's brand, hiring more engineers and improving some of its services during the third quarter. On top of that, Yahoo expects to surrender about $75 million in revenue by reducing the volume of ads that management has identified as being too obnoxious.
Ad revenue down 13 per cent
Those plans will squeeze profits unless Yahoo can snap out of a slump that deepened in the third quarter with a 13 per cent decline in ad sales.
Bartz said advertisers appeared willing to spend a little bit more during the second half of the quarter, although she stopped short of predicting better times ahead.
"There's just so much conflicting information in the market that it's just too early to call," she told analysts in a Tuesday conference call.
Yahoo earned $141.4 million US, or 10 cents per share, in the three months ending in June. That was up from income of $131.2 million, or nine cents per share, last year during the same quarter. Analysts surveyed by Thomson Reuters had predicted Yahoo would earn eight cents per share.
Revenue for the period slid 13 percent to $1.57 billion. That's the biggest decline so far in a three-year slump that has seen Yahoo fall further behind internet search leader Google Inc. in the online ad market.
After subtracting commissions paid to its advertising partners, Yahoo's revenue stood at $1.14 billion US. That matched analyst projections.
Since her arrival, Bartz has been identifying Yahoo's strengths and weaknesses, streamlining the company's decision making and cutting deeper into a payroll that had already begun to thin under predecessor and Yahoo co-founder Jerry Yang.
Yahoo, Microsoft discuss partnering on search
Yahoo ended the quarter with 13,000 employees, down 9 percent from 14,300 workers at the same time last year.
"The quarter was a mixed bag, but I am pleased we could control the things that we could control вЂ" and that was the cost side of the equation," Tim Morse, Yahoo's chief financial officer, said in a Tuesday interview.
Yahoo encountered its biggest problems in the lucrative search market that generates most of Google's profits. Yahoo's ad sales alongside the search results appearing on its own web site fell 15 percent to $359 million US.
As a possible remedy, Yahoo has discussed turning over its search advertising sales to rival Microsoft Corp., which is eager to pick up more market share to mount a more serious challenge to Google. A blog affiliated with The Wall Street Journal reported the two sides are getting close to reaching a deal that could be announced as early as this week.
Meanwhile, Yahoo is sprucing up its highly trafficked home page for the first time in three years to make it easier to see what's happening at the internet's other hot spots. The long-promised facelift made its debut in the United States on Tuesday.
