Internet search engine Yahoo! Inc. (YHOO), said Tuesday its second-quarter profit increased 51% over last year, boosted by significant growth in display advertising revenue, higher margins, and lower operating expenses.
Though quarterly earnings met analysts' expectations, revenues fell short of Street consensus. Looking ahead, the company has forecast revenue for the third quarter, which is expected to come in line with estimates.
The company's shares lost more than 6% in the after-hours trading, due to disappointing revenue growth.
Net income attributable to Yahoo was $213 million or $0.15 per share for the second quarter, up from $141 million or $0.10 per share in the prior year quarter.
Excluding restructuring charges and other items, non-GAAP net income grew to $219.88 million or $0.16 per share from $145.40 million or $0.10 per share in the year-ago quarter. On average, 27 analysts polled by Thomson Reuters expected the company to report earnings of $0.14 per share for the second quarter. Analysts' estimates typically exclude special items.
Income from operations for the quarter surged 130% to $175 million from $76 million in the second quarter of 2009.
Operating margin improved to 11.0% from 4.8% in the previous year quarter. Excluding restructuring charges, operating margin expanded to 11.6% from 8.9% in the corresponding quarter last year.
The Sunnyvale, California-based company's second quarter revenue increased 2% to $1.60 billion from $1.57 billion in the same quarter last year.
Excluding traffic acquisition costs or TAC, revenue declined to $1.13 billion from $1.14 billion a year earlier. Twenty-nine analysts had a consensus revenue estimate of $1.16 billion for the second quarter.
Marketing services revenue grew 4% to $1.44 billion, but fees revenue dropped 16% to $162.91 million in the second quarter of 2010.
Marketing services revenues from Owned and Operated sites rose 3% to $881 million, driven by a 19% increase in display advertising revenue, partially offset by an 8% decline in search advertising revenue.
Marketing services revenue from Affiliate sites rose 7% to $557 million over a year earlier.
U.S. revenue declined 5% to $1.13 billion, and EMEA revenue fell 6% to $140.51 million from the year-ago quarter. However, Asia Pacific revenue grew 38.5% year-over-year to $327.65 million.
Total operating expenses for the second quarter eased to $743.3 million from $784.7 million in the prior year quarter.
Google Inc. (GOOG) continued to lead the U.S. core web search rankings in June 2010, while rival Yahoo came in a distant second, according to data published by Internet data tracking firm comScore Inc. (SCOR). Google has been the undisputed leader in search engine for several quarters now.
Google sites accounted for 62.6% of the searches conducted in June, followed by sites of Yahoo with a share of 18.9% and Microsoft Corp. (MSFT) sites with a share of 12.7%. However, Google's share of searches were down 1.1 points from 63.7% in May 2010, while Yahoo and Microsoft witnessed slight improvement.
Under the search and advertising services and sales agreement, Microsoft agreed to reimburse Yahoo the cost of operating algorithmic and paid search services following commencement of performance under the agreement.
Microsoft separately agreed to reimburse Yahoo for transition costs up to an aggregate total of $150 million. Yahoo's results for the latest quarter reflect $86 million for search operating cost reimbursements.
Earlier this month, Yahoo's board approved a new stock repurchase program to repurchase up to $3 billion of the company's outstanding shares of common stock.
For the first-half of fiscal 2010, net income attributable to Yahoo grew to $523.5 million or $0.37 per share from $259.0 million or $0.18 per share in the previous year period.
Non-GAAP net income rose to $438.7 million or $0.31 per share from $268.5 million or $0.19 per share in the same period last year.
Revenue for the six-month period increased to $3.20 billion from $3.15 billion in the prior year period. Excluding TAC, revenue decreased to $2.26 billion from $2.29 billion in the year-ago period.
For the third quarter of 2010, Yahoo anticipates income from operations in the range of $160 million to $200 million, and revenue in the range of $1.570 billion to $1.650 billion. Excluding TAC, revenue is estimated to between $1.105 billion and $1.165 billion, while the Street expects revenue of $1.16 billion for the third quarter.
Earlier this month, Yahoo expanded the reach of its mobile products and services with the launching of Yahoo! Mail and Yahoo! Messenger apps for Android as well as a Yahoo! Search Widget for Android.
The Yahoo! apps for Android will provide more than 300 million Yahoo! Mail and Yahoo! Messenger users with the best communication experience for easily accessing and sharing information on Android phones.
In addition, Yahoo announced several new product integrations, including an expanded social networking for users of Yahoo and Facebook. People who use both Yahoo and Facebook can link these accounts and communicate across both networks.
Yahoo has already announced a global partnership to integrate Twitter's real-time social experiences across Yahoo.
In May, Yahoo acquired location-based social network Koprol, headquartered in Jakarta, Indonesia, to extend the internet company's social, mobile and local offerings. Financial terms of the transaction were not disclosed. Koprol enables users to interact and share knowledge about their community in a way that is uniquely tailored to mobile phones.
Yahoo also acquired Associated Content Inc. in a move to extend its ability to provide high quality, personally relevant content for the benefit of more than 600 million users and tens of thousands of advertisers. Financial terms of the deal were not disclosed. The acquisition is expected to benefit advertisers, and help Yahoo expand into more topic areas and real-time content generation.
Yahoo has also entered into a worldwide strategic alliance with mobile device manufacturing giant Nokia (NOK), under which Nokia will be the exclusive provider of maps and navigation services to Yahoo, integrating Ovi Maps across Yahoo properties, branded as powered by Ovi.
Meanwhile, Yahoo will become the exclusive provider of Nokia's Ovi Mail and Ovi Chat services branded as Ovi Mail/Ovi Chat powered by Yahoo.
Among others in the industry, Mountain View, California-based Google reported that its second-quarter profit increased 24% over last year, driven by double-digit growth in advertising revenues.
Another peer, AOL Inc. (AOL) is scheduled to report its results for the second quarter on August 4. Analysts project quarterly earnings of $0.42 per share on revenues of $601.28 million.
Yahoo closed Tuesday's regular trading at $15.20, up 10 cents, on a volume of 29.39 million shares. However, in after hours, the shares lost 1.01% or 6.64%. The stock has been moving in a range of $13.75 - $19.12 for the past 52 weeks, with an average three-month volume of about 23.06 million shares.
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