Yahoo profit beats the street, but sales miss

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By Blake Ellis, staff reporterApril 20, 2010: 8:31 PM ET


NEW YORK (CNNMoney.com) -- Shares of Yahoo fell after the bell Tuesday when the world's second-largest search engine said its first-quarter profit beat Wall Street's expectations, but sales failed to measure up.

The company also forecast second-quarter sales that topped analysts' outlook.

Yahoo posted a profit of $310 million, which was nearly triple the $118 million it earned in the same quarter last year. Earnings per share totaled 22 cents, compared with 8 cents per share a year ago.

Earnings in the first quarter were lifted by Yahoo's revenue-sharing search deal with Microsoft, which launched in February.

Under the 10-year agreement, Yahoo received $35 million from Microsoft (MSFT, Fortune 500) for search operating costs during the first quarter and will continue to benefit from reimbursements in the second quarter.

Excluding gains from the sale of e-mail and calendar software maker Zimbra, as well as transition cost reimbursements from Microsoft, the company earned 15 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their forecasts, were expecting 9 cents a share.

Sales rose 1% to $1.6 billion on an improved advertising market. Excluding traffic acquisition costs, which are the advertising costs shared with partners, Yahoo reported sales of $1.13 billion, missing the $1.17 billion expected by analysts.

"We delivered what I'd call a solid quarter," Yahoo chief executive Carol Bartz said on an earnings call. "Large advertisers came back...and that means their purse strings are starting to loosen up."

Display advertising for Yahoo's owned and operated sites jumped 20% from last year. However, the gain was offset by a 14% decline in search ad revenue.

"I don't think it's been any secret that we've had a tough road to hoe in search," she said.

But "all that has passed," she added. Bartz expects search ad revenue to "trend up" in the second quarter.

For its second quarter, Yahoo forecast revenue between $1.6 billion and $1.68 billion, excluding traffic acquisition costs. Analysts were looking for $1.2 billion.

Shares of Yahoo (YHOO, Fortune 500) fell nearly 4% in after-hours trading.

Last week, leading search giant Google (GOOG, Fortune 500) posted a 38% rise in earnings during the first quarter, also boosted by an improving advertising market.