Yahoo! Net Up On Cost Cuts, Prepares For Battle With AOL, Facebook

Yahoo! (NASDAQ: YHOO) had a large advance in net income in the quarter ending March 31. EPS  rose from $.08 to $.22 in the last period. Net income was $313 million up from $118 million last year. The figures were helped by “$78 million in net reimbursements from Microsoft, including $43 million for net transition cost reimbursements and $35 million for search operating cost reimbursements.”

Income from operations was $188 million compared to $101 million last year, which means that the company posted impressive improvements before the Microsoft payments were included. Revenue for the period was down very slightly to $1.597 billion.

Yahoo! now faces the task of improving its market share in search and display advertising which involves capitalizing on its relationship with Microsoft. Facebook, the world’s largest social network in particular, has begun to have success as an advertising platform after two years of difficulty working to get marketers to believe that social networks are a viable alternative to search engines and portals. The specter of Google’s huge market share in search is a perennial.

The figures show that online ad revenue has begun to stabilize after 2009’s difficulty. And, on top of that stability, Yahoo! slashed product development  costs from$266 million in the current period from $306 million last year. Yaho0! announced significant layoffs in the second half of 2009 and those cuts have begun to bear fruit.

EPS benefited from $0.05 per diluted share related to the sale of Zimbra, Inc. and $0.02 per diluted share related to transition cost reimbursements from Microsoft.

The best news from the quarterly reports was the company’s outlook for the current period, Although in line with expectations, it shows improvement is expected quarter-over-previous quarter, which would have been nearly impossible in the 2009 marketing environment. Yahoo! said revenue for the second quarter of 2010 is “expected to be in the range of $1,600 million to $1,680 million. Income from operations for the second quarter of 2010 is expected to be in the range of $155 million to $195 million.”

The online ad recession is over. Yahoo! will now have to prove that its can hold expenses down, take advantage of its Microsoft arrangement to drive cost improvements and revenue increase and, perhaps most important, take revenue market share from Google (NASDAQ: GOOG), AOL (NYSE: AOL), and, perhaps most important Facebook

Douglas A. McIntyre