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Yahoo meets analyst expectations

Posts first-quarter net income that's down from a year ago on higher stock compensation expenses but is in line with expectations.

Yahoo on Tuesday posted a first-quarter net income that was down from a year ago on higher stock compensation expenses but was in line with analyst expectations.

Net income, including $71 million of stock compensation expense, was $160 million, or 11 cents a share, recorded under a new fair-value method. That compares with a year-ago figure of $138 million, or 9 cents per share, under the fair-value method--or $205 million, or 14 cents a share, recorded under the old intrinsic-value method--and when Yahoo had $6 million of stock compensation expense, the company said.

Yahoo adopted new accounting rules this year that require all companies to record stock compensation expense at fair value in the income statement. Previously, Yahoo only recorded the intrinsic value of awards, if any, in the income statement and disclosed stock compensation expense on a fair-value basis in the footnotes to the financial statements. Yahoo has not restated previously announced results.

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Revenue, excluding traffic acquisition costs or fees shared with partners, was $1.09 billion, up 33 percent from $821 million a year earlier.

Analysts polled by Thomson Financial had expected Yahoo to post first-quarter earnings per share of 11 cents, including stock-based compensation expenses, on revenue of $1.08 billion, excluding traffic acquisition costs.

During its previous financial-results conference call, Yahoo had forecast that first-quarter revenue would be between $1.04 billion and $1.1 billion.

The company reiterated fiscal year guidance of revenue excluding traffic acquisition costs of between $4.6 billion and $4.85 billion and gave second-quarter guidance of revenue between $1.08 billion and $1.16 billion. Analysts had forecast second-quarter revenue of $1.14 billion.

Yahoo executives believe they are gaining market share in branded and graphical online advertising and expect to boost revenue and increase market share in search advertising after it releases a new search advertising platform later this year, Dan Rosensweig, Yahoo chief operating officer, said in an interview with CNET "We continue to believe that our social search products are going to have a tremendous impact over the next couple of years in terms of overall share," he added.

Yahoo's growth is outpacing that of the Internet overall, with "one of every two Internet users around the world using a Yahoo service each month, Chief Executive Terry Semel said during a conference call with analysts. The company now has 402 million unique users, 208 million active registered users and 13.3 million fee paying customers, he said. Meanwhile, the number of employees has risen by more than a third during the past year to greater than 10,000 employees, Semel said.

While Yahoo is not gaining market share in the search market it doesn't appear to be losing it to Google either, said Safa Rashtchy, an analyst at Piper Jaffray. "They are not really seeing a widening of the gap," he said. The new search monetization platform "could increase revenues for Yahoo, and some people are assuming that that is not in the guidance."

Revenue including traffic acquisition costs was $1.57 billion compared with $1.17 billion a year earlier.

Adjusted net income, excluding stock compensation expense, was $231 million, or 15 cents a share, under the new fair-value method compared with adjusted net income of $195 million, or 13 cents a share, recorded under the intrinsic-value method a year ago.

The news pushed Yahoo shares up more than 6 percent in after-hours trading to $33.20.

Yahoo shares are down 28 percent since they peaked at $43.42 in early January 2006.

Yahoo is the second search engine in terms of market share with 28 percent share, behind Google with 42.7 percent but ahead of Microsoft with 13.2 percent, according to March figures released Tuesday by ComScore Networks.

Overall traffic to Yahoo sites grew 8 percent in the first quarter from a year earlier to an average monthly unique audience of 104.7 million, according to Nielsen/NetRatings.

Yahoo rival Google reports its first-quarter results Thursday. Yahoo is planning to hold its annual analyst day on May 17 at its Sunnyvale, Calif., headquarters.