Investors feeling better about Yahoo


SAN FRANCISCO -- Jerry Yang has investors feeling better about Yahoo Inc. again, four months after taking over as chief executive in an attempt to revive the struggling Internet icon that made him a billionaire.

A turnaround suddenly seemed more plausible after the Sunnyvale-based company released a third-quarter earnings report Tuesday that exceeded Wall Street's lowered expectations and Yang detailed his plans to emphasize the Web site's strengths while continuing to dump the deadwood.

"Things certainly seem to be moving in the right direction," said American Technology Research analyst Rob Sanderson. "Now the question is can they string a few quarters like this in a row?"

Investors gave Yang a vote of confidence by driving up Yahoo shares by $2.02, or more than 7%, to $28.71 at the open of trading Wednesday. The stock price had fallen $1.17 to finish regular trading at $26.69 before the third-quarter report came out.

Yahoo said it made $151.3 million during the three months ended in September. That was 5% less than its net income of $158.5 million in the same period last year.

The earnings were 11 cents per share in both periods because Yahoo bought back some of its stock during the past year in an attempt to bolster its eroding market value.

The results exceeded the average earnings estimate of 8 cents per share among analysts surveyed by Thomson Financial.

The third quarter was Yang's first as Yahoo's CEO since Chairman Terry Semel stepped aside in mid-June under pressure from disgruntled shareholders.

Yang, who co-founded Yahoo with David Filo in the mid-1990s, has promised to engineer a comeback from the financial doldrums that battered the company's stock as online search leader Google Inc. pulled further ahead in the booming Internet ad market.

Until now, investors had seemed skeptical about whether Yang could rescue Yahoo. Before the rally in Tuesday's extended trading, Yahoo's stock price had fallen by 5% in the months since Yang became CEO. Google's shares soared by 20% during the same period.

But Yang's strategy to turn Yahoo's Web site and its expanding ad network into a more powerful marketing magnet gained credibility in the third quarter. That's because sales of online display ads, a glaring weakness in the past year, finally increased during the summer, Sanderson said.

Meanwhile, Yahoo's earlier improvements in its system for delivering text-based ads tied to search requests also appears to be paying off.

Those strides helped increase Yahoo's third-quarter revenue by 12% to $1.77 billion.

After subtracting commissions paid to Yahoo's advertising partners, revenue stood at $1.28 billion -- nearly $40 million above the average analyst estimate.

"We have a lot more work to do, but we are genuinely excited about where the company is headed," Yang told analysts in a Tuesday conference call.

After releasing disappointing second-quarter earnings in July, Yang pledged to overhaul Yahoo's operations during a 100-day review. In a posting late Tuesday on Yahoo's corporate blog, Yang said he emerged from the reorganization meetings more excited than ever.

"What we ultimately saw was massive untapped potential and the opportunity to achieve things few companies on the planet could accomplish," Yang wrote. "As audacious as that sounds, we believe it's entirely within our reach with a lot of hard work and ... a shift in culture."

Yahoo already has either closed or announced plans to close several services, and Yang indicated other "one-off" features were likely to be weeded out before the year is over.

He didn't provide any details but said Yahoo is trying to focus on its strengths in e-mail, sports and news while devoting less attention to things like its music subscription service.

"To some degree, (Yang) has seemed to stabilize things," said Gartner analyst Mike McGuire. "He answered some questions this quarter, but there will be more in another 90 days."