Yahoo Earnings Rise, Revenue Sinks

SAN FRANCISCO (AP) — Yahoo's second-quarter results aren't giving Marissa Mayer a lot to celebrate as she completes her first year running the Internet company.

The numbers released Tuesday showed Yahoo Inc.'s earnings are still rising, but they also highlighted the challenges facing the Sunnyvale, Calif. company as it loses ground to rivals Google Inc. and Facebook Inc. in the online advertising market that generates most of their revenue.

Wall Street focused on Yahoo's revenue problems instead of its earnings gains. The company's stock dipped 48 cents, or nearly 2 percent, to $26.45 in extended trading after the report came out.

Despite that downturn, Yahoo's shares have surged nearly 70 percent since Mayer defected from a top job at Google to attempt a turnaround at one of the Internet's best-known brands.

But Yahoo's stock has largely been propelled by a steadily appreciating investment in Alibaba, a fast-growing Internet company in China, made eight long years ago.

Yahoo reaped a $7.6 billion windfall from selling nearly half its stake back to Alibaba Group last year and is expected to bring in even more money when it divests the rest of its holdings in the Chinese company within the next few years.

Alibaba is also lifting Yahoo's earnings, as the second-quarter report illustrated. Yahoo's made more money from its investments in Alibaba and Yahoo Japan during the second quarter than it did from its U.S. operations. That's the second straight quarter this year that has occurred.

Yahoo earned $331 million, or 30 cents per share, in the three months ending in June. That compared with net income of $227 million, or 18 cents per share, at the same time last year.

If not for certain items unrelated to its ongoing business, Yahoo said it would have earned 35 cents per share. That was a nickel above the average estimate among analysts surveyed by FactSet.

Cost cutting helped boost the earnings. Yahoo's second-quarter operating expenses, excluding ad commissions, fell 9 percent from the same time last year. The company's payroll stood at 11,500 workers at the end of June, also down by 9 percent over the past year.

Revenue for the period declined 7 percent from the same time last year to $1.14 billion.

After stripping out ad commissions, Yahoo's revenue came to $1.07 billion. That was slightly below analyst projections and marked a 1 percent decline from last year. It's the first time that Yahoo's net revenue has fallen since Mayer took over.

Despite the erosion, Mayer said she remains encouraged by Yahoo's progress. She has consistently said it may take two or three years before the company's ad sales are growing as rapidly as the rest of the Internet market. In the meantime, she has been focused on improving Yahoo's employee morale, engineering acquisitions that can bring in more promising technology and engineering talent and tweaking the company's products.

"Our business saw continued stability, and we launched more products than ever before, introducing a significant new product almost every week," Mayer said in a prepared statement about the Yahoo's second-quarter performance.