Yahoo finally getting out of the woods

Yahoo may finally be pulling out of a three-year slump that cast aside two CEOs and spurred a cost-cutting spree that led to about 2,000 layoffs.

The purge helped Yahoo more than triple its third-quarter profit from last year to top analysts' relatively low expectations for the troubled internet company. The Sunnyvale-based company also got a $98 million (£59 million) lift from the sale of its stake in China's Alibaba.com.

But the results released yesterday also showed Yahoo's revenue fell by at least 12 per cent for the third consecutive quarter. The revenue rut means Yahoo still has a long way to go on its comeback trail.

Analysts, though, believe Yahoo should be able to boost its ad sales - the main source of its revenue - as long as the US economy continues to heal and marketers funnel more of their budgets to the web.

Carol Bartz, Yahoo's third chief executive since June 2007, indicated she believes the worst is over.

"We had a solid third quarter that signals our major businesses have stabilised," she said in a prepared statement.

Yahoo earned $186 million (£112 million), or 13 cents a share, in the July-September quarter, compared with $54 million (£32 million), or 4 cents a share, at the same time last year.

The average analyst estimate among analysts polled by Thomson Reuters was 7 cents per share.

Revenue for the period fell 12 per cent $1.58 billion (£953 million), barely an improvement from the first six months of the year when revenue dropped by 13 per cent.

Investors apparently were pleased with the modest progress. Yahoo shares gained 97 cents, or 5.7 per cent, to $17.55 in extended trading. In regular trading earlier, shares fell 5 cents to close at $17.17.

Bartz didn't participate in Yahoo's conference call with analysts because of an unspecified illness that was described as "nothing serious" by Tim Morse, the company's chief financial officer.

While Yahoo has been trying to regain its footing, Google has sprinted further ahead of its older rival. Last week, Google posted the highest profit in its 11-year history in the third quarter as its revenue climbed 7 per cent.

But Bartz has argued it's unfair to compare Yahoo with Google, even though the two companies run the internet's two largest search engines.

She contends Yahoo's website is more of an information and entertainment hub that happens to have a good search engine, too.

Google handles about two out of three search requests in the United States while Yahoo processes about one in every five of the queries. The disparity gives Google a huge advantage because a huge piece of internet advertising is tied to search requests.

Advertisers also are more likely to increase their spending on search ads because they are relatively inexpensive and typically only cost money when they are clicked on. And Google seems to show more ads that provoke consumer clicks.

"We know Google does a better job monetizing than we do, that's well chronicled," Morse acknowledged in yesterday's conference call.

Yahoo makes more of its money in display advertising - a niche consisting of online billboard and other more visual messages. Those marketing campaigns tend to require larger, long-term commitments that are unlikely to be made until advertisers see more evidence that the economy is strengthening.