Yahoo! Profits From Better Ad Market, Microsoft Pact

Shares of Yahoo! Inc. (YHOO) were trading down on Wednesday despite the Internet company’s higher first-profit income and revenue.

By about 2 p.m. Eastern, Yahoo! stock was worth $17.53, a drop of 4.62 percent.

The company late Tuesday afternoon reported $310.2 million in profit, up from $117.6 million a year earlier and $1.6 billion in revenue, a 1.1 percent increase.

Yahoo! said the online ad market is improving – just as it has for rival Google Inc. – and the new search pact with Microsoft Corp. is showing positive results.

First, display advertising grew by 20 percent. In a conference call with analysts, CEO Carol Bartz said that’s because the economy continues to improve and advertisers’ “purse strings are starting to loosen up.”

Second, search partner Microsoft forked out $43 million to Yahoo! in a one-time transaction meant to cover costs Yahoo! incurred last year and in 2010’s first quarter. Microsoft also paid Yahoo! $35 million for search operating costs; Yahoo’s earnings will continue to reflect those reimbursements throughout the 10-year life of the companies’ deal. Microsoft’s Bing search engine now powers searches on Yahoo!’s Web holdings. That helped Yahoo!’s search market share rise in March to 16.9 percent, according to research firm comScore.

Yahoo!’s latest results reflect the company’s first revenue growth since the third quarter of 2008.

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