- Associated Press - Tuesday, July 20, 2010

SAN FRANCISCO (AP) - Yahoo Inc.’s turnaround effort wavered in the second quarter as the Internet company’s lackluster revenue growth overshadowed a surge in net income.

The results released Tuesday could cause some investors to doubt the strategy of Yahoo’s no-nonsense CEO, Carol Bartz, who was hired 18 months ago to lead the company out of a prolonged financial funk that has depressed its stock.

Bartz has been able to boost Yahoo’s earnings by cutting costs, but so far hasn’t been able to produce dramatic revenue gains.

Yahoo’s second-quarter revenue growth of 2 percent was particularly disappointing, given that Google Inc. last week announced its revenue surged 24 percent in the same period. Both Google and Yahoo make virtually all of their money from online advertising, a sector that has been recovering from the Great Recession more quickly than other forms of marketing.


The challenges facing Yahoo are similar to those at many other companies that have been fattening their bottom lines by trimming expenses while revenue remains lean.

“We still have plenty of work to do,” Tim Morse, Yahoo’s chief financial officer, said in a Tuesday interview.

He said the second quarter looked fairly strong until June when several large advertisers suddenly reduced their spending. “That has made us incrementally more cautious,” Morse said.

Reflecting that circumspect mood, Yahoo predicted its third-quarter revenue would either remain unchanged from last year or increase by as much as 4 percent.

Yahoo shares shed 95 cents, or 6.3 percent, in extended trading after finishing the regular session at $15.20, up 10 cents.

The company earned $213 million, or 15 cents per share, in the three months ending in June. That represented a 51 percent increase from net income of $141 million, or 10 cents per share, at the same time last year.

The earnings were a penny above the average estimate among analysts polled by Thomson Reuters.

Revenue for the period edged up 2 percent to $1.6 billion, from $1.57 billion.

After subtracting commissions paid to its ad partners, Yahoo’s revenue totaled $1.13 billion _ about $30 million below analyst estimates.

Yahoo would have fared slightly better if it hadn’t been for the strengthening U.S. dollar as investors fretted about the European debt crisis. The changes in currency rates translated into fewer dollars from overseas advertising compared with a year ago.

About 29 percent Yahoo’s revenue comes from outside the United States, with Europe accounting for less than 9 percent of the total. That left the company less exposed to the currency squeeze than Google, which gets most of its revenue overseas.

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