Yahoo’s revenue and profit slid significantly in the first quarter of 2011, but the company’s performance was in line with Wall Street’s expectations and company officials said the results reflect solid execution toward its financial goals.
During the quarter ended 31 March, revenue came in at $1.21 billion, down 24% compared with the same period last year. Yahoo said the revenue drop is in part due to a change in how it recognises the part of its revenue derived from its search advertising agreement with Microsoft. That revenue isn’t reported as gross revenue, but rather as part of the net revenue left after subtracting commissions paid to advertising and other partners.
Yahoo’s net revenue was $1.06 billion, down 6% year on year but matching the consensus estimate from analysts polled by Thomson Financial.
Meanwhile, net income fell 28% to $223 million, while earnings per share dropped 23% to $0.17 per share, exceeding analysts’ consensus estimate by one penny.
“We continue to make headway on our plan to increase profitability and grow revenue. We’re executing and innovating faster,” Yahoo CEO Carol Bartz said during a webcast to discuss the quarter’s results.
Without providing specific details, Bartz said that the revenue per search (RPS) generated by the combined Yahoo-Microsoft search ad marketplace has been below the companies’ expectations.
Although customers are seeing increased return on investment, Microsoft needs to improve its AdCenter systems architecture, features and functionality, she said.
Microsoft and Yahoo signed their 10-year search deal in mid-2009 but didn’t get regulatory clearance for it until early 2010.
When the deal was signed, Yahoo estimated that, when fully implemented, it would boost its annual operating income by about $500 million, provide capital expenditure savings of about $200 million and increase annual operating cash flow by about $275 million.
Yahoo is also bullish on video ads, which it sees as its fastest-growing format, she said.
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