Yahoo's advertising and search revenues fall, but cost cutting helps

Just as we had expected, Yahoo (YHOO) announced a drop in net revenue today, after the market close.The company said that during its second quarter, net revenue fell by 13 percent from the same period one year ago to $1.57 billion. The fall was fueled by a sagging market for advertising sales. Had it not been for currency fluctuations, revenues would have declined eight percent. Net income came in at $141.4 million -- 10 cents per share -- up eight percent from one year ago and better than expected.

The company's relatively new chief executive officer, Carol Bartz, put a positive spin on the data claiming that Yahoo is at the "center of people's lives online" while promising to create "wow experiences" for its users. One of those "wow" experiences is supposed to be the the company's new home page, which includes easier access to online content, including services such as Twitter, in order to keep increasing user engagement while at the site.
The fact is, the cost cutting did help to boost the company's profit in the face of slumping advertising sales. Bartz has taken a number of steps to improve Yahoo's cost structure and make it more efficient. Since becoming chief executive in January, she has reduced the employee count by five percent, or 700 people, and is apparently working to close a deal with Microsoft (MSFT) -- something that could happen as soon as this week, according to All Things Digital.

Looking closely at the numbers, revenues were brought down by currency fluctuations, the sale of Kelkoo in late 2008 and lower revenues from voice-over-IP services and subscription music offerings. The company said that its marketing service revenues were also down 13 percent from the year-ago period and that marketing services revenue from "owned and operated" sites were down 16 percent to $858 million. Yahoo said that its cash flow from operating activities for the second quarter came in at $342 million -- down 20 percent from the same period in 2008. On the positive side, free cash flow rose by 15 percent to $266 million and the company has cash of $4.1 billion compared to $3.5 billion at the end of 2008.

Yahoo's search business, a key metric to watch, turned out to be disappointing. Search revenue fell by 15 percent far more than the five percent analysts had expected. Yahoo only accounts for 20 percent of all searches; the vast majority are done through Google which handles about 65 percent of searches in June, according to research firm ComScore.

Another key metric -- display advertising revenue -- was also disappointing falling 14 per cent.

Looking ahead, Yahoo said to expect third quarter revenue between $1.4 billion and $1.5 billion and income from operations of $55 million to $65 million.

Shares of YHOO are down about five percent in after-hours trading.

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