Yahoo posts higher profit but outlook weak

NEW YORK/SAN FRANCISCO (Reuters) - Yahoo Inc's fourth-quarter results beat Wall Street's low expectations, thanks to a series of cost cuts in a weak advertising market, sending its shares up 5 percent in a relief rally on Tuesday.

However, Yahoo gave first-quarter forecasts for operating income that were well below Street estimates and refrained from giving its usual full-year outlook, which disappointed some analysts and underscored the uncertainties the company faces.

"They didn't bleed to death as much as some of the bear scenarios" had predicted, said Martin Pyykkonen, an analyst at Wunderlich Securities.

"It's certainly not good results and not a good outlook, but relative to the kind of general fears in the market, I wouldn't say it was any worse," he added.

Yahoo, the leading provider of online display advertising, has been under pressure for nearly a year as it held fruitless merger or partnership talks with Microsoft Corp , Google Inc and Time Warner Inc's AOL.

During that time, Yahoo lost market share in search advertising, while display ad sales have been badly hit industrywide by the U.S. recession. Yahoo shares have plunged 60 percent from a 12-month high of $30.25, after Microsoft made an unsolicited bid for the Silicon Valley company last February.

The stock rose 5.4 percent to $11.95 in after-hours trading following the results, from their Nasdaq close of $11.34.

Fourth-quarter profit, excluding write-downs and one-time charges associated with Yahoo's restructuring efforts, rose to $238 million, or 17 cents per share, from $205.7 million, or 15 cents per share, a year earlier.

That beat the analysts' average forecast for 13 cents per share, according to Reuters Estimates.

But including the write-downs and charges, Yahoo posted a net loss of $303 million, or 22 cents per share.

Gross revenue, including payments to affiliated websites that carry Yahoo ads, fell 1 percent to $1.81 billion. Net revenue was $1.375 billion, in line with the average Wall Street forecast of $1.371 billion.

"EVERYTHING IS ON THE TABLE"

Carol Bartz replaced Yahoo co-founder Jerry Yang as chief executive earlier this month. Yang, who had been CEO for 18 months, was seen by investors as the main impediment to a Microsoft deal and many hoped Bartz's appointment could restart talks.

On her first earnings conference call with Yahoo analysts, Bartz said she didn't join Yahoo to sell the company, nor did she have a preconceived notion of doing a search deal, but that "everything is on the table." Microsoft has said it no longer wants all of Yahoo, but would still pursue a search-only deal.

"Am I planning to immediately sell the search business? I'm still learning about the business," Bartz said. "Search is a very valuable part of business."

Some analysts said Yahoo needed to continue to cut costs and show it can sustain financial discipline beyond one quarter before it can see any deal activity.

"If you're an investor in Yahoo, you're thinking you need to have patience -- patience for at least two years," said Trip Chowdhry, analyst at Global Equities Research. "I don't see any deal activity. What I see is Yahoo taking time to continue pruning properties that are not profitable and which are not No. 1 or No. 2 in that specific category."

OUTLOOK WEAK

Yahoo said it expects income from operations of $75 million to $85 million in the first quarter, about half the average analyst forecast of $165 million, according to Reuters Estimates.

It forecast operating income before interest, taxes, depreciation and amortization of $365 million to $415 million, compared with the average Street estimate of $485 million.

The company also estimated revenue of $1.525 billion to $1.725 billion.

One analyst said while it was understandable that Yahoo's new management would be cautious, it was being "comically conservative."

"Margins were positive in December and the company just laid off all these people and the benefits of that should kick in during March, so it (the guidance) just doesn't add up," said Gene Munster, analyst at Piper Jaffray.

Chief Financial Officer Blake Jorgensen said in an interview that the marketplace was difficult but Yahoo was still seeing strong growth in search, while display has slowed down. "I have no idea how advertisers will react over the next two or three quarters," he said. "We're only giving one quarter of guidance because of some of that uncertainty."

(Additional reporting by Robert MacMillan and Sue Zeidler; writing by Tiffany Wu; editing by Richard Chang)

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