Yahoo Beats Expectations; Stock Steps Up After Hours

Oct 17, 05:00 AM

Current Headlines: By Jefferson Graham

It's an all-new Yahoo.

The beleaguered Internet company, which has been struggling to catch up to red-hot Google, announced weaker earnings Tuesday, but investors didn't care.

Yahoo beat analysts' expectations, and investors responded by pushing up the stock in after-hours trading.

Executives from Yahoo spent much of their conference call with analysts talking about changes in the company's structure.

In June, co-founder Jerry Yang stepped in as CEO, replacing former Warner Bros. chief Terry Semel, in a move to show investors that Yahoo was serious about making changes.

Yang said on the call Tuesday that he and Yahoo President Sue Decker have spent much of the summer looking at ways to make Yahoo stronger. "We're very pleased with Yahoo's transformation," Yang said. "We've taken some important steps, and now we're more effectively organized to execute well."

The new Yahoo, he said, is shutting down weaker-performing units, and focusing on stronger relationships with developers and ways to capture visitors to its front page. For instance, Yang said Yahoo's music division has de-emphasized its focus on subscription music in favor of online radio. The company also has closed Yahoo Photos in favor of the popular Flickr photo-sharing service and is looking to beef up its Yahoo 360 social network.

Yahoo said its third-quarter net income fell to $151 million, or 11 cents a share, from $158 million in the year-ago quarter. Revenue increased 12% to $1.8 billion, from $1.5 billion in the third quarter of 2006.

Analysts had expected earnings of $113 million, or 8 cents a share, according to Reuters Estimates.

"The market clearly wants an alternative to Google," said Greg Sterling, an analyst at Sterling Market Intelligence. "They don't want one company controlling all the online advertising inventory."

Rival Google, which announces earnings on Thursday, dominates Internet search. In a study released Tuesday, research firm Hitwise said Google's share of Internet searches was 63.5% in September, up from 60% the previous September, while Yahoo grew marginally, to 22.5% from 22.3%. Microsoft's MSN fell to 7.8% from 10.8%.

Decker said the $45 billion online advertising industry will grow to $75 billion by 2010. "We believe we're one of the few companies with the expertise and insight to take advantage of it," she said.

"The revenues are up, so there's clearly some momentum, but the jury is out on how it will play out in the coming months," Sterling said.

Yahoo closed at $26.69 in regular trading, then gained 9% in after-hours trading to $29.09. (c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.