Yahoo! doubles profit, meets earnings expectations

Yahoo! has reported earnings that met Wall Street analyst expectations, thanks to continued strength in its commercial search business.

The web giant posted a profit of $112.5 million, or 8 cents per diluted share, for its fiscal second quarter, which ended June 30. That's up from $50.8m, or 4 cents a share, in the same period last year, taking into account a 2-to-1 stock split, effective May 11. Revenue for the quarter was $609m, excluding traffic acquisition costs (TAC), compared with $321m a year ago.

Yahoo!'s stock fell in after-hours trading on Wednesday, down 14 per cent to $28 a share shortly after the company reported earnings.

Wall Street expected Yahoo! to earn 8 cents per share and $610m in revenue, according to Thomson First Call's consensus of analyst estimates.

Much of the stock downturn stemmed from what Yahoo! executives deemed as seasonal flatness in the commercial search business. Despite contributing significantly to Yahoo!'s revenue and profitability, Wall Street investors were hoping to see blowout results like last quarter.

Jordan Rohan, an equity analyst at Schwab Soundview Capital Markets, said: "I believe investors have overestimated the growth in search."

The result is that the second and third fiscal quarters are expected to show slower growth, while the first and fourth could become boom periods for paid search. Still, Yahoo! executives are satisfied with this quarter's numbers.

Yahoo! CEO Terry Semel said in an interview: "To us, we're very happy. We weren't at all surprised. Pricing is stable, everything is good."

Last quarter, Yahoo! earned $101m in profits, or 7 cents a share, after the stock split. Revenue for the period was $550m.

Yahoo!'s earnings highlight revenue numbers that do not include TAC, which excludes the fees its Overture Services subsidiary pays to search partners. Companies such as CNN and Microsoft's MSN get a cut of revenue every time customers click on Overture's paid search listings. Executives consider TAC revenue less illustrative of Yahoo!'s true revenue potential.

Yahoo!'s total revenue including TAC reached $832.2m for the quarter.

Yahoo!'s operating income before depreciation and amortization - formerly known as EBITDA - reached $234m. Cash flow hit $250m, while free cash flow reached $194m from $71m a year ago.

Here's a breakdown of Yahoo!'s various revenue generators:

·   Marketing services: The business line, which encompasses the company's advertising revenue, posted $691m, up from $635m the previous quarter and $219m a year ago. The results include revenue from Yahoo!'s acquisition of Overture, whose highly lucrative paid search business accounted for the bulk of this quarter's gains. The company did not break out how much of this revenue came from paid search and how much came from display advertising.

·   Fees: Revenue from Yahoo!'s paid services businesses jumped to $104m from $88m last quarter and $70m last year. Bulk paid subscriptions reached 6.4 million from 5.8 million last quarter and 3.5 million a year ago. Executives attributed the revenue difference to a price increase for SBC Communications' dial-up customers who also use Yahoo!'s services.

·   Listings: This business, which largely consists of Yahoo!'s HotJobs subsidiary, reported $38m in revenue. That's up from $34m last quarter and $32m a year ago.

Jim Hu writes for CNET News.com