YAHOO'S first-quarter net income more than doubled as the internet heavyweight began to reap rewards from an improving online-advertising market, as well as its recent search pact with Microsoft.
A sharp rebound in display advertising enabled California-based Yahoo to report its first revenue growth since the third quarter of 2008, although a 14 per cent drop in search-advertising revenues tamped down overall revenue growth.
Chief executive Carol Bartz said in a conference call with analysts: “The economy continues to improve” and advertisers’ “purse-strings are starting to loosen up”.
The internet giant also began to show benefits from its search agreement with Microsoft, which paid an unexpected one-time “net transition cost reimbursement” of $US43 million ($46m) to cover costs that Yahoo incurred in 2009 as well as in the first quarter of 2010.
“It's unexpected and probably the biggest driver of the bottom-line upside surprise,” said Benchmark Capital analyst Clayton Moran.
Yahoo also received $US35 million from Microsoft for search operating costs, an ongoing reimbursement provided for in the two companies' recently implemented search pact. The company said it expects to receive between $US75m and $US85m in ongoing quarterly reimbursements under terms of the deal.
Chief financial officer Tim Morse told a conference call: “The $US35 million for search operating expenses represent the initial step on the path to the long-term cost savings we anticipate as a result of the alliance.”
Since taking the helm of Yahoo early last year, CEO Bartz has pushed to turn around the company by focusing on core web properties and its display advertising business.
Yahoo said revenue from its display advertising business climbed 20 per cent from the same period last year, reflecting a rebound in the online advertising market.
During the quarter, Yahoo launched its 10-year revenue-sharing partnership with Microsoft, aimed at challenging Google’s dominance of the online-search market.
Under the pact, Microsoft's Bing will power searches on Yahoo’s web properties. Data from web research firms indicate Yahoo has stabilised its declines in market share and may be expanding it.
Ms Bartz said she expected Yahoo’s search share to “trend up” during the second quarter, which would reverse several quarters of losses in market share.
Yahoo’s search share rose to 16.9 per cent in March from 16.8 per cent in the prior month, according to comScore. It was the first increase since Microsoft launched its revamped Bing search engine last year. The two companies' combined share in the search market has remained relatively stable since, while Google's share has also held firm around 65 per cent.
In the most recent period, Yahoo reported that operating search advertising revenue dropped 14 per cent, after posting its first sequential quarter of growth in a year in the fourth quarter.
Yahoo posted a profit of $US310.2m, up from $US117.6m, a year earlier.
Total revenue increased 1.1 per cent to $US1.6 billion, in line with the company's January forecast of $US1.58bn to $US1.68bn. But net revenue, after traffic acquisition costs, was at $US1.13bn, slightly below Wall Street expectations of $US1.17bn.
Gross margin crept higher to 55.8 per cent from 55.7 per cent.