Frugality fuels Yahoo's second-quarter gains

There was nothing spectacular about Yahoo's quarterly financials announcement, but things do appear to be looking up for its display advertising business.

Caroline McCarthy Former Staff writer, CNET News
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.
Caroline McCarthy
2 min read

It was sort of a sunny day in Sunnyvale.

Yahoo's second-quarter earnings were up only slightly, but display advertising at its owned-and-operated sites rose 19 percent from the same quarter last year as the ad market has bounced back a bit from the dregs of the media recession. Search remained a weak spot. Net revenues are up 2 percent to $1.6 billion, and net income per diluted share (EPS) was $0.15, barely beating estimates of $0.14.

"We're pleased that we continued to deliver strong operating income and margin expansion," Yahoo CEO Carol Bartz, who joined the company about 18 months ago and has been tasked with spearheading a turnaround, said in an earnings release Tuesday. "Our search fundamentals are improving and we posted another quarter of healthy display advertising growth."

But none of this was particularly surprising; Yahoo's ongoing management restructuring had led Wall Street to expect a rise in revenues as the Bartz-led belt-tightening progressed. That's partially what led to Yahoo's jump in operating income from $76 million in the second quarter of last year to $175 million this year.

After trading flat at first, Yahoo shares rose almost 1 percent to $15.22 in the minutes before the market closed, and then ultimately closed at $15.20.

On Monday, San Francisco-based investment banking firm ThinkEquity had upgraded Yahoo shares from "hold" to "buy," citing a current low price and promising signs in Yahoo's display advertising revenues, search partnership with Microsoft, and additional partnerships and acquisitions.

"We believe Yahoo is taking the right steps with increased social integration, the Zynga alliance, (and) the Associated Content acquisition," the ThinkEquity report asserted.

Yahoo acquired Associated Content, a hyped content start-up with syndication deals in place with the likes of USA Today and Thomson Reuters, in May for around $100 million.

Comparisons were inevitable between Yahoo's earnings and Google's, which were announced last week. While Google's revenues were up 24 percent from the second quarter of 2009, the company fell short of analysts' expectations.