Yahoo looking better to investors after 3Q profit soars despite drooping ad sales

Yahoo slump eases as 3Q profit more than triples

SAN FRANCISCO — Yahoo Inc. may finally be pulling out of a three-year slump that cast aside two CEOs and spurred a cost-cutting campaign that led to about 2,000 layoffs.

The purge helped Yahoo more than triple its third-quarter profit from last year to top analysts’ relatively low expectations for the troubled Internet company. The Sunnyvale company also got a $98 million lift from the sale of its stake in China’s Alibaba.com.

But the results released Tuesday also showed Yahoo’s revenue fell by at least 12 percent for the third consecutive quarter. That revenue rut means Yahoo still has a long way to go on its comeback trail.

Analysts, though, believe Yahoo should be able to boost its ad sales — the main source of its revenue — as long as the U.S. economy continues to heal and marketers funnel more of their budgets to the Web.

Carol Bartz, Yahoo’s third chief executive since June 2007, indicated she believes the worst is over.

“We had a solid third quarter that signals our major businesses have stabilized,” she said in a prepared statement.

Yahoo earned $186 million, or 13 cents a share, in the July-September quarter, compared with $54 million, or 4 cents a share, at the same time last year. The average estimate among analysts polled by Thomson Reuters was 7 cents per share.

Revenue for the period fell 12 percent $1.58 billion, barely an improvement from the first six months of the year when revenue dropped by 13 percent.

The modest progress apparently pleased investors. Yahoo shares gained 90 cents, or 5.3 percent, to $18.07 in extended trading. If the stock mirrors that surge in Wednesday’s regular trading, it will mark a new 52-week high for the stock. Yahoo shares remain well below a $33-per-share takeover offer that Microsoft Corp. dangled in May 2008, only to withdraw the bid after Yahoo asked for more money.

While Yahoo has been trying to regain its footing, Google Inc. has sprinted further ahead of its older rival. Last week, Google posted the highest profit in its 11-year history in the third quarter as its revenue climbed 7 percent.

But Bartz has argued it’s unfair to compare Yahoo with Google, even though the two companies run the Internet’s two largest search engines. She contends Yahoo’s Web site is more of an information and entertainment hub that happens to have a good search engine, too.

Google handles about two out of three search requests in the United States while Yahoo processes about one in every five of the queries. The disparity gives Google a big advantage because a huge piece of Internet advertising is tied to search requests.

Advertisers also are more likely to increase their spending on search ads because they are relatively inexpensive and typically only cost money when they are clicked on. And Google tends to show more ads that provoke consumer clicks.

To help close the gap, Yahoo is turning to Microsoft Corp. to power its search engine in the United States. If regulators approve the alliance, Yahoo plans to transfer at least 400 workers to Microsoft and lay off an unspecified number of other employees in an effort to save more than $400 million annually.

Yahoo makes most of its money in display advertising — a niche consisting of online billboards and other more visual messages. Those marketing campaigns tend to require larger, long-term commitments that are unlikely to be made until advertisers see more evidence that the economy is strengthening.