Yahoo Q1 surges; buyout bid doesn't

Microsoft stands firm on its offer

Every investor on Wall Street knew Yahoo would pull out all the stops in its attempt to put its first-quarter results in a positive light so that Microsoft might increase its takeover bid, and the No. 2 Internet search engine didn't disappoint.

But just before Yahoo reported that it beat expectations and raised its guidance for full-year operating income, Microsoft CEO Steve Ballmer told Reuters that Yahoo's results, one way or the other, wouldn't affect its bid, which was for $44.6 billion though fluctuating depending on the price of Microsoft stock.

Yahoo CEO Jerry Yang wasted no time Tuesday, addressing the Microsoft bid in his remarks before analysts had a chance to ask about it. The bid, he said, "substantially undervalues" Yahoo.

He also reiterated that he is "open to any and all alternatives, including a sale to Microsoft." Those alternatives also include partnerships with Google — already being tested — and some undisclosed ideas that could involve News Corp. and its MySpace or Time Warner and its AOL, though Yang didn't talk specifics Tuesday.

Yahoo said its net income surged 281% in the first quarter to $542.2 million, with $401 million of that being a noncash gain from the initial public offering of, the Chinese Internet portal partially owned by Yahoo.

When the Alibaba gain is stripped from the results, Yahoo earned 11 cents per share, which is two cents better than analysts were expecting.

Revenue rose 9% to $1.82 billion, with $1.31 billion coming from the U.S. and $510 million from Yahoo's international business. Last week, Google flaunted its worldwide appeal by reporting more revenue from its international business than from the U.S. for the first time in its history.

After subtracting the money Yahoo pays its advertising partners, revenue was $1.35 billion, besting analysts' expectations by $30 million.

Yang called the results "extraordinary," though questions remain whether they were crisp enough to warrant a bigger bid from Microsoft or another company. Based on Microsoft's closing price Tuesday, the bid stands at just under $30 per share of Yahoo stock, which closed at $28.54.

Just before Yahoo reported earnings Tuesday, a CNBC stock picker was recommending that traders buy Yahoo on the assumption that Microsoft will raise its bid to $33. Others have predicted that rather than engage in a costly proxy battle, as Microsoft has threatened, the world's largest software maker would go as high as $35 a share, putting Yahoo's value at about $50 billion, less than half of what it was worth eight years ago near the height of Internet mania on Wall Street.

Analysts are expected to grill Microsoft executives about their next Yahoo move during their conference call after the company reports earnings on Thursday.

Although Yahoo's results were generally impressive, its 9% revenue growth paled in comparison with Google, which last week reported a 42% revenue climb in the first quarter to $5.2 billion.

Yahoo has forecast full-year revenue at $8 billion on the high end, and on Tuesday the company upped by $50 million its guidance for earnings before interest, taxes, depreciation and amortization.

One analyst Tuesday acknowledged being skeptical of Yahoo's relatively rosy guidance, in part because of a slow U.S. economy. Yang, perhaps anticipating such concerns, predicted earlier in the conversation that in tough economic times advertisers will flee high-priced television and other media and flock to the Internet.

Yahoo ended the quarter with 13,800 employees, down from 14,300 at the end of last year. According to Nielsen//NetRatings, Yahoo increased its monthly unique visitors average from 107.5 million a year ago to 114.1 million this year, and total minutes grew 8% to 66.9 billion in the quarter.