Yahoo Inc.'s third-quarter profit slipped less than analysts feared, raising hopes that co-founder Jerry Yang will deliver on his promise to turn around the slumping Internet powerhouse now that he has settled in as chief executive
The prospect of better times lifted Yahoo's stock price nearly 9 percent late Tuesday.
The Sunnyvale-based company said it made $151.3 million during the three months ended in September. That was 5 percent less than its net income of $158.5 million in the same period last year.
The earnings were 11 cents per share in both periods because Yahoo bought back some of its stock during the past year in an attempt to bolster its eroding market value.
The third quarter was Yang's first as Yahoo's CEO since Chairman Terry Semel stepped aside in mid-June under pressure from disgruntled shareholders.
Analysts entered the quarter with low expectations after Yahoo struggled through the first half of the year in spite of an online advertising boom. The company's third-quarter results exceeded the average earnings estimate of 8 cents per share among analysts surveyed by Thomson Financial.
Revenue for the period totaled $1.77 billion, a 12 percent improvement from last year.
After subtracting commissions paid to Yahoo's advertising partners, revenue stood at $1.28 billion - nearly $40 million above the average analyst estimate, according to Thomson Financial.
Investors cheered the news, released after the stock market closed. Yahoo's stock price surged $2.39, or 8.9 percent, in after-hours trading after finishing Tuesday's regular session at $26.69, down $1.17.
The stock price still remains well below its levels in early 2006 when Yahoo shares climbed above $40.
Since then, online search leader Google Inc. has pulled far ahead of Yahoo and other rivals scrambling for a piece of the estimated $45 billion market for Internet advertising.
"We have a lot more work to do, but we are genuinely excited about where the company is headed," Yang told analysts during a Tuesday conference call.
Yang has been working closely with Susan Decker, a longtime Yahoo executive who was promoted as part the June shake up, to retool the company in an effort to regain some of the ground lost to Google during recent years.
"To some degree, he has seemed to stabilize things," said Gartner analyst Mike McGuire. "He answered some questions this quarter, but there will be more in another 90 days."
Investors have seemed skeptical about Yang's comeback hopes. Before the rally in Tuesday's extended trading, Yahoo's stock price had fallen by 5 percent in the months since Yang became CEO. Google's shares soared by 20 percent during the same period.
After releasing disappointing second-quarter earnings in July, Yang pledged to overhaul Yahoo's operations during a 100-day review.
Yahoo has either closed or announced plans to close several services, and Yang indicated other "one-off" features were likely to weeded out before the year is over.
He didn't provide any details but said Yahoo is trying to focus on its strengths in e-mail, sports and news while devoting less attention to things like its music subscription service.
"The Yahoo we envision today is very different from the Yahoo of a year ago," Yang told analysts.
The reorganization apparently won't result in mass layoffs - something analysts considered possible after Yang said there would be "no sacred cows" as he pored through the company's operations. Yahoo added 1,200 employees during the third quarter, a 10 percent increase from the second quarter largely driven by acquisitions.
Yahoo is aiming to grab a bigger chunk of the advertising budgets shifting to the Internet as consumers spend more time surfing the Web instead of watching television, listening to the radio or reading newspapers and magazines.
Toward that end, Yahoo has been expanding the reach of its advertising network through acquisitions and partnerships with other Web sites. The company also has upgraded its system for delivering text-based ads tied to search requests - a technique that generates most of Google's profits.
In a coup announced Tuesday, Yahoo said it will replace Google as the provider of search-driven advertising to WebMD Health Corp.'s Web sites beginning next month.
Financial details weren't disclosed, but the revenue-sharing agreement will last several years.
Yahoo also disclosed new advertising alliances with Forbes.com, Cars.com and Ziff-Davis Media. Those deals all involve display advertising that usually feature images and other graphics. ( AP )