Yahoo trounces earnings estimates

"All of the company's metrics were exceptionally strong," said John Segrich, an analyst with CIBC World Markets. "And all the surprises were on the upside."

Yahoo reported pro forma net income of $40.4 million, or 14 cents a share, excluding merger and amortization costs for the period ending September 30. For the same period a year ago it reported earnings of $6.9 million, or 2 cents a share.

Analysts had expected earnings of 9 cents a share, according to First Call.

Including merger-related and amortization costs, Yahoo posted net profits of $14.9 million, or 5 cents a share, for the quarter just ended. Wall Street, however, excludes such costs when establishing estimates.

Revenues reached $155 million for the period, compared with $66.3 million a year ago. Some analysts had expected Yahoo to report revenues of $139 million for the quarter.

"The revenue line was far stronger than anyone thought it would be, and the company seems to have its acquisitions under control and ahead of schedule," Segrich said.

For example, Yahoo's operating profit margins were 34.6 percent, compared with 27 percent in the previous quarter. Segrich said that performance is about six to nine months ahead of where Wall Street had expected given its spate of acquisitions.

Yahoo chief executive Tim Koogle said a focused operating plan and small teams to deploy the mergers have contributed to the quick assimilation of the acquired companies.

He added that revenues were bolstered by an increase in the number and size of the company's advertisers. Yahoo had 3,150 advertising clients in the third quarter, up from 2,700 in the previous period.

Yahoo's registered user base grew to 80 million, compared with 65 million in June. During September, the number of unique users rose to 105 million, compared with 80 million in June.

The company also reported that average daily page views in September reached 385 million for its network, compared with 310 million in June. Yahoo, which completed its $5 billion stock acquisition of Broadcast.com in July, included 3.5 million pages from Broadcast.com in its third-quarter figures.

Last quarter, despite reporting better-than-expected earnings, Yahoo's stock took a slight hit over Wall Street's concerns that the company's average daily page view growth was slowing.

But in sizing up the third quarter, Segrich said he was pleased with Yahoo's page views.

Koogle said Yahoo will continue to focus on its international expansion. Europe, followed by Asia-Pacific and Latin America is the order in which the company is concentrating its resources. Europe is expected to be added next year.

Yahoo stock closed at 175.75, up 2.44. Yahoo reported earnings after the stock markets closed. In after-hours trading, however, the shares were trading at about 183.

Although Yahoo once served as a bellwether for all Internet stocks, that's not necessarily the case today.

"We have seen more stratification in Internet stocks over the last year," said Andrea Williams, an analyst with E*Offering. "We no longer see all ad-based revenue stocks do well if Yahoo does well. But if Yahoo doesn't do well, all Internet stocks get hurt. It seems Yahoo only affects stocks one way but not both ways."

She noted, however, that Lycos, AOL, Infoseek, About.com, and LookSmart may be the exception and could see their share prices rise if investors are pleased with Yahoo's earnings.