Yahoo profit falls 19 per cent, but stays positive

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Although embattled web search firm Yahoo saw its net profit fall 19 per cent, investors took heart that it did not change its outlook despite a weakening US economy and the distraction of Microsoft's failed takeover bid.

Shares of the Internet company, which just settled a proxy battle with activist investor Carl Icahn, rose 2.7 per cent in extended trade following the quarterly report.

"Investors braced for the worst," said Jeffrey Lindsay, analyst at Sanford Bernstein. "... these results are poor, but relative to what people were expecting, they're not so bad."

Chief financial officer Blake Jorgensen said Yahoo was not changing its financial view for 2008, even though a difficult economic environment is weighing on online advertising.

"We are pretty pleased (with the results), relative to both the distractions and the economy," he said in an interview.

Yahoo executives made no secret that the quarter included unusual headaches, particularly the back-and-forth with Microsoft. Jerry Yang referred to the battle as "extraordinary," but said he was committed to staying as chief executive. President Sue Decker called the takeover fight a "swirl."

Despite the distractions of Icahn and Microsoft, Yang said his company intended to keep looking at possible transactions. Since January, Yahoo has faced an unsolicited takeover bid from Microsoft, but talks between the two tech giants have cooled.

"We have looked at just about every alternative you could imagine as far as looking at how do we best position the company to go forward either through transactions and/or financial options," Yang said on a conference call.

Second-quarter net income fell to $131 million (£66 million), or nine cents per diluted share, from $161 million, or 11 cents per share, a year earlier. Wall Street was looking for 10 cents a share, according to Reuters Estimates.

Net revenue excluding payments to affiliated Web sites that carry Yahoo ad services rose eight per cent to $1.35 billion. Analysts, on average, had expected $1.37 billion.

The results come a day after Yahoo agreed to appoint Icahn and two of his nominees to its board, eliminating the need for a proxy battle at its 1 August annual meeting, and reducing the chances of immediately revisiting a Microsoft deal.

Analysts said the settlement may buy some time for Yang and his management team to turn around Yahoo, which has struggled for years to keep up with Google. But the reprieve could be limited if investors don't see a change in fortunes.

Yang said he looks forward to Icahn joining him on the board of directors as part of the settlement deal. Icahn had sought to replace the entire Yahoo board and oust Yang.

"Carl is a very smart guy. He is clearly one of the best negotiators out there," Yang said, adding: "We think it is a good settlement. We avoided a pretty public fight."

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