The stronger-than-expected earnings performance is expected to bode well for the Internet industry, which has seen its stocks hit particularly hard during the past few weeks as the markets tumbled. But that rise has not occurred yet today. Yahoo was down 16.06 points or 14.04 percent to 98.31. The stock has traded as high as 134.63 and as low as 17.06 during the past 52 weeks.
The company announced that its third-quarter profits were driven by stronger-than-expected revenue growth and higher-than-anticipated interest income from its investments.
The portal firm posted net income of $16.6 million, or 15 cents per share, compared to profits of $681,000, or 1 cent per share, a year earlier. Analysts had expected the company to earn 9 cents per share, according to First Call.
Analysts note that income generated from interest off its investments contributed a few cents per share to Yahoo's profits.
Henry Blodget, an analyst with CIBC Oppenheimer said that, in addition to the interest income generated, Yahoo's revenue performance also was stronger than expected.
He had pegged the company's revenues at $45 million, but instead they came in at $53.6 million for the quarter, up nearly threefold from a year ago.
Scott Ehrens, an analyst with Bear Stearns, said Yahoo was early in hitting his fourth quarter revenue forecast--achieving that figure in the third quarter.
Nonetheless, Yahoo reiterated its cautionary note about its upcoming fourth quarter.
"We continue to benefit from strong demand from advertisers and merchants. Now, these are extraordinary growth rates, which are clearly not sustainable," said Gary Valenzuela, chief financial officer. He noted that during the holidays fewer people are typically online, resulting in lower traffic and revenues.
Analysts said Yahoo's better than expected performance stemmed from higher than anticipated revenues, while keeping expenses largely within Wall Street's expectations.
"Yahoo blew through our revenue estimates without exceeding our expense assumptions," said Derek Brown, an analyst with Volpe Brown Whelan & Co. "They're seeing a huge amount of leverage in their business."
Traffic to the site averaged 144 million page views per day in September, up from an average of 115 million page views per day in June. Traffic from Japan contributed 11 million of the September page views, an increase of 37.5 percent from June.
The firm also reported 25 million unique registrations for the quarter.
"Our strong revenue growth during the quarter was the result of expanded services and growth in advertisers and merchants," Tim Koogle, president and chief executive of Yahoo, said in a statement.
During the quarter, the company added free full fantasy football to its Yahoo Sports area, launched Yahoo Small Business, and supplemented its travel services.