Yahoo grew its revenue and net income and exceeded Wall Street's expectations for both categories during its first quarter of 2008, arguably one of the closest-watched earnings reports of its history, as it tries to fend off an acquisition attempt by Microsoft.
Revenue came in at US$1.818 billion (£906 million), up 9 percent compared to 2007's first quarter. Deducting the commissions paid to websites in its ad network, Yahoo's revenue was $1.352 billion (£677 million), a 14 percent increase and above the $1.324 billion (£663 million) consensus expectation from financial analysts polled by Thomson Financial.
Yahoo's directors and managers have been arguing strongly against Microsoft's acquisition bid, announced almost three months ago and now valued at around $42 billion (£21 million), saying it undervalues the company and is not in investors' best interest.
Yahoo's management has been actively seeking alternative deals that will allow it to build a case against Microsoft's bid, but so far hasn't come up with anything concrete.
The closest thing to a partnership was Yahoo's eyebrow-raising announcement on 9 April that it would begin displaying Google search ads in a small number of its search engine queries for up to two weeks.
The first-quarter financial report and management conference call will likely be closely scrutinised and, depending on how satisfied or dissatisfied investors are with the results, the report is likely to have a significant effect on Yahoo's tussle with Microsoft.
Jerry Yang, Yahoo's CEO, sounded ecstatic during the conference call on Tuesday, saying he was very proud of the results and describing the quarter, which ended 31 March, 2008, as one of Yahoo's "most exciting" ever.
"[The results] are all the more remarkable when you take into account the recent economic environment and the uncertainty stemming from Microsoft's unsolicited proposal," Yang said.
"We have the free cash flow, capital and scale we need to deliver on our plan to substantially grow revenue, and our investment in innovation is beginning to produce tangible results," Yang said.
Yahoo's management and directors are open to "any" alternatives to maximize shareholders' value, including a sale to Microsoft, but they remain convinced that the current bid significantly undervalues the company, he said.
"Our board and management are committed to choosing a path to maximize stockholder value and will not enter into any transaction that doesn't recognize the full value of this company," Yang said.
Yang and other executives repeatedly stressed that online advertising is a young, growing market, and that Yahoo will capitalise on its expansion in established formats such as display and search, as well as in emerging segments such as video and mobile advertising.
Yang said the first-quarter results prove that Yahoo is on the right track to achieve its aggressive growth plan for the next three years, disclosed last month. "We believe we can achieve significant growth over the next three years, and the results of this quarter demonstrates we're making progress against that plan," Yang said.
The plan, presented to Yahoo's board of directors in December, predicts that Yahoo will roughly double its operating cash flow over the next three years from $1.9 billion to $3.7 billion, and forecasts that, subtracting the commission that Yahoo pays to sites in its advertising network, Yahoo will generate $8.8 billion in revenue in 2010. Financial analysts remain generally sceptical that Yahoo will be able to attain these lofty financial goals.
Yahoo expects revenue to be between $1.730 billion and $1.930 billion in the second quarter, and between $7.2 billion and $8 billion for the full year, the company said Tuesday.
Microsoft has resisted raising its bid for Yahoo and said that, if no deal has been reached by Saturday, it will attempt a hostile takeover of the company via a proxy fight.
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