Yahoo's revenue grew slightly in the first quarter of 2010 but profits rose more strongly, as the company's display advertising business performed to management's satisfaction.
Yahoo had revenue of $1.59 billion in the first quarter of 2010, ended March 31, up 1 percent compared with the first quarter of 2009, the company said Tuesday. Subtracting commissions and other fees paid to partners, revenue was $1.13 billion, below the $1.17 billion consensus expectation from analysts polled by Thomson Financial.
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Net income came in at $310 million, or $0.22 per share, up from $118 million, or $0.08 per share. In the first quarter of 2010, Yahoo got a $0.05-per-share benefit from the sale of Zimbra and a $0.02-per-share benefit from reimbursements made by Microsoft related to the companies' search deal.
On a pro forma basis, which excludes certain items, net income was $218.84 million, or $0.15 per share, six cents more than analysts expected and up from $123.11 million, or $0.09 per share, one year ago.
"We delivered what I call a solid quarter. Revenue stabilized and profits were up," said CEO Carol Bartz in a conference call to discuss the financial results
She highlighted a 20 percent growth in display advertising revenue in Yahoo sites, including a 24 percent boost from "guaranteed" display ads, which are pricier ad units for which marketers pay a premium.
The growth in these premium display ads was driven by large advertisers that are loosening their marketing purse strings as the economy improves, she said. "We're well-positioned to benefit from this trend," Bartz said.
Search ad revenue in Yahoo sites fell 14 percent, but Bartz put a positive spin on this, saying she's confident the company will improve in this segment. "We've stabilized our search share and believe it'll trend up in Q2," she said. Search ad revenue fell year-on-year 15 percent, 19 percent and 15 percent in 2009's second, third and fourth quarters, respectively.
CFO Tim Morse said that revenue per search improved sequentially for the second straight quarter, helped by a 2 percent revenue growth from 2009's fourth quarter in the U.S. "That's particularly significant given that the December quarter is traditionally the strongest for monetization, typically followed by a lower Q1," Morse said.
Ad revenue from affiliate sites grew 7 percent during the quarter. In all, ad revenue from Yahoo and affiliate sites grew a combined 3 percent.
That was offset by fees, the small non-advertising portion of Yahoo's revenue, which dropped 11 percent to $174 million.
Yahoo's total revenue fell 6 percent in the U.S. but grew 21 percent abroad.
Yahoo ended the quarter with 14,200 employees, 300 more than in 2009's fourth quarter.
In the first quarter, Yahoo saw a net benefit of $78 million from Microsoft reimbursements related to the companies' search deal, which got regulatory approval in the U.S. and Europe in February.
That 10-year deal calls for Yahoo to use Microsoft's Bing search engine for back-end functions like crawling, ranking and indexing Web sites. Yahoo will continue to be in charge of its search user interface.
The deal also calls for Microsoft to be in charge of self-serve, search ad sales, while Yahoo will manage premium search ad sales.