- Associated Press - Tuesday, October 18, 2011

SAN FRANCISCO (AP) - Yahoo keeps losing ground in the fast-moving Internet market, increasing the pressure on the struggling company to abandon its perpetual turnaround attempts and negotiate a sale with one of several prospective bidders.

The latest signs of Yahoo Inc.’s malaise surfaced Tuesday in its third-quarter earnings report. The lackluster results for the July-September period extended a streak of financial mediocrity that culminated in Yahoo’s abrupt firing of Carol Bartz as CEO last month.

Although cost-cutting measures imposed by Bartz helped boost Yahoo’s earnings after stripping out one-time gains, the company is still selling less advertising at a time when the overall Internet market has been growing.

After subtracting ad commissions, Yahoo’s third -quarter revenue stood at $1.07 billion _ a 5 percent drop from the same time last year.

That performance looks even feebler next to the 37 percent increase in net revenue that Internet search and advertising leader Google Inc. enjoyed during the third quarter. Analysts believe Facebook, the owner of the Web’s most popular hangout, is growing at an even quicker pace, although there is no way of knowing for certain because the privately held company isn’t required to reveal its finances.

Yahoo, which is based in Sunnyvale, Calif., doesn’t anticipate an upturn in the final three months of the year _ typically the busiest time for online advertising because it coincides with the holiday shopping season.

If it hits the mid-range of management projections, Yahoo’s net revenue in the fourth quarter will fall by about 6 percent from the same time last year.

Normally, Yahoo’s stock price would fall after a ho-hum quarter that offered little hope for better times ahead.

But that didn’t happen Tuesday, largely because many investors are betting that Yahoo’s struggles will make it more likely the company will sell itself as a whole or in part. The company’s stock price already has climbed by more than 20 percent since Bartz’s Sept. 6 ouster.

Yahoo shares gained 42 cents, or 2.7 percent, to $15.89 in Tuesday’s extended trading.

Tim Morse, who is filling in as Yahoo’s interim CEO while also working as chief financial officer, told analysts Tuesday that he couldn’t discuss what the company’s next step might be or when it might take it.

“The board is actively looking at the full range of options available to return the company to a path of robust growth and industry-leading innovation,” Morse said. “The objective is to deliver on the company’s potential and create value for employees, advertisers, users and shareholders.”

Even before the third-quarter report came out, Stifel Nicolaus & Co. analyst Jordan Rohan issued a report putting the odds of Yahoo being sold at 80 percent.

Most of Yahoo’s attraction lies in its Internet investments in Asia and a worldwide audience of about 700 million people each month. Before taxes, the value of Yahoo’s 35 percent stake in Yahoo Japan now stands at $6.4 billion while its 43 percent stake could be worth about $14 billion, Morse said

That appraisal implies Wall Street is putting little or no value on Yahoo’s U.S. assets, given the company’s market value is $20 billion.

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