Yahoo! profits increase, revenue hit by Microsoft deal

20 Jul 2011

Internet portal giant Yahoo! saw surprise profits of US$237m, up 11pc from US$213m a year ago, despite revenues declining 5pc year-on-year to US$1.08bn. The company attributed the decline in revenues to its revenue share search agreement with Microsoft.

Income from operations increased 9pc to US$191m in the second quarter of 2011, compared to US$175m in the second quarter of 2010.

“For the quarter, earnings per share was up by 18pc year over year. We made clear progress in search, and saw strong growth in engagement on our media properties,” said Carol Bartz, CEO of Yahoo! “We experienced softness in display revenue in the second half of the quarter due to comprehensive changes we have made in our sales organisation to position ourselves for more rapid display growth in the future.”

Yahoo! said it continued to modernise its technology platforms, with 33 additional sites across the Americas, EMEA and Asia Pacific going live on the new global content platform in the quarter, bringing the total to 67. Yahoo! News in the US went live in the quarter, the largest site to migrate to date.

Yahoo! continued to break its traffic records with news events, including the Royal Wedding in April marking the largest one-day event with more than 400m page views, Yahoo! operated the internet’s No 1 Royal Wedding site. It said people also turned to Yahoo! when news of the death of al Qaeda leader Osama bin Laden broke, with almost 900m page views on Yahoo! News, 50m video streams and 500m photos viewed in the first week.

Impact of Microsoft search deal on Yahoo!’s results

Yahoo!’s results for the second quarter of 2011 reflect US$55m in search operating cost reimbursements and US$12m in transition cost reimbursements from Microsoft under the Search Agreement, which amounts are equal to the search operating costs and the transition costs incurred by Yahoo! in the second quarter.

Transition cost reimbursements are subject to a US$150m cap, and through the second quarter aggregate transition costs of US$146m had been incurred.

“Search operating cost reimbursements are expected to continue to decline as Yahoo! fully transitions all markets to Microsoft’s search platform and the underlying expenses are no longer incurred under our cost structure,” the company said.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years