Yahoo Stops the Bleeding, but So-So Results Signal Long Road Ahead

Yahoo (YHOO) CEO Carol Bartz may have stanched the bleeding, but she hasn't yet cured the patient. That was the bottom line Tuesday as the beleaguered Web giant posted lackluster results, meeting Wall Street expectations. After hours, the company's strong guidance sent the company's shares higher. For the current quarter, Yahoo forecast revenue between $1.6 billion and $1.7 billion, significantly higher than the $1.2 billion analysts had been expecting.Investors cheered Bartz's best performance since taking the reins -- the stock was up 2.63% after-hours -- even if many analysts had been privately hoping the company would surprise to the upside, suggesting Bartz's turnaround is in full swing. That didn't happen, signaling that while Bartz has made progress, the turnaround has only just begun.

Meeting Expectations Isn't Enough

In results that matched expectations, Yahoo earned $153 million, or 11 cents per share, compared with a loss of $303 million one year ago. But revenue continued to fall, even if at a slower rate -- 4% -- than in the first three months of the year, when revenue slipped 12%.

After rising slightly during the day, Yahoo shares dipped into the red after the results were announced, only to bounce back higher as investors digested the news and focused on the healthy guidance. Options trading showed investors split on interpreting the results, but sentiment seemed to settle on the upside as the earnings call progressed.

Bartz tried to put a good spin on the numbers."The fourth quarter marked a strong finish to 2009, which was a transformative year for Yahoo," she said. "We beat the high end of our revenue guidance, saw demand for premium display advertising improve significantly, and grew Owned & Operated search advertising revenue sequentially for the first time since the third quarter of 2008."

"Our business has positive momentum and we feel good as we head into 2010," Bartz added. "We're pleased that the midpoint of our Q1 revenue outlook marks the first quarter of year-over-year growth in six quarters."

Enough Cutting, More Earning

To be fair, the numbers show that Bartz is beginning to make progress stemming the downward spiral that company has been mired in for several years. But with archrival Google (GOOG) running on all cylinders, and AOL (AOL), the parent company of DailyFinance, preparing a massive display ad push, Bartz needs some fireworks. She needs to demonstrate how the Yahoo intends to find more revenue, as the company's search share continues to slip.

At the end of the day, cuts and streamlining will only get Yahoo so far. Bartz needs to define a plan to make money and grow the business, and then execute that plan like crazy.

Company executives tried to sound the right notes. "We're intensely focused on improving execution in all areas of the company, and our solid financial results for the fourth quarter demonstrate the progress we're making," Yahoo CFO Tim Morse said in a statement. "We'll continue to execute against our key financial objectives of accelerating revenue growth, and increasing our operating margin and returns on capital over the next few years."
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