SAN FRANCISCO (Reuters) - Yahoo Inc YHOO.O posted a better-than-expected quarterly profit on Tuesday, but failed to do well enough to convince many on Wall Street that Microsoft Corp (MSFT.O) needs to raise its takeover bid.
Yahoo left its revenue outlook for the year unchanged and its shares ticked down about 1 percent in extended trading.
”Microsoft is breathing a sigh of relief,“ said Jim Friedland, an analyst at Cowen & Co. ”Even though these are solid results, given long- and short-term challenges, there’s been no overall shift in Yahoo’s business.
“Microsoft’s offer is still the best offer on the table,” he said, adding the software maker could “modestly raise” its $43 billion cash-and-share bid just to close the deal.
Mike Binger, fund manager at Thrivent Financial, which owns shares in both Microsoft and Yahoo, said: “I would say at this point Microsoft would stay their bid.”
Microsoft has set a Saturday deadline for Yahoo to strike a deal or face a hostile takeover battle and a lower offer. Its top executive on Tuesday signaled nothing Yahoo said about the quarter would change its resolve.
“I wish Yahoo all the success with its results, but it doesn’t affect the value of Yahoo to Microsoft,” Microsoft Chief Executive Steve Ballmer said during a visit to Morocco, before Yahoo reported its results.
Buoyed by a $401 million non-cash gain on a stake in China’s Alibaba.com Ltd 1688.HK, Yahoo’s first-quarter net income rose to $542.2 million, or 37 cents per diluted share, from the year-ago quarter’s $142.4 million, or 10 cents per diluted share.
Excluding one-time items and stock compensation costs, the beleaguered Internet company reported a profit of $150 million, or 11 cents per share. On that basis, Wall Street on average was looking for a profit of 9 cents per share, according to Reuters Estimates.
Chief Financial Officer Blake Jorgensen made a point of saying the company’s results were “right on track,” despite having to deal with the distraction of Microsoft’s offer.
“We are not opposed to a deal with Microsoft,” Jorgensen told Reuters. “What we are opposed to is seeing it at a value that discounts the underlying value of the company.”
The company said it had already spent $14 million on outside advisors related to the Microsoft bid and other strategic efforts.
Sources familiar with the matter told Reuters on Tuesday that Yahoo was still in separate talks with News Corp NWSa.N and Time Warner Inc (TWX.N) about other types of deals.
Yahoo’s first-quarter revenue rose 9 percent to $1.82 billion. Excluding payments to advertising affiliates, or traffic acquisition costs (TAC), revenue rose 14 percent to $1.35 billion.
Analysts had forecast revenue of $1.32 billion and said the numbers showed Yahoo’s efforts to overhaul its search advertising and improve upon its sales of Internet display ads, like banners, had paid off, despite fears of an impact from U.S. economic slowdown.
“I think everyone is going to be modestly optimistic about Yahoo coming in at the upper end of the range on revenue,” said Ross Sandler of RBC Capital Markets.
Yahoo kept its 2008 total revenue forecast at $7.2 billion to $8.0 billion, unchanged from the outlook it gave in January, but it did not comment on revenue excluding TAC, which is the figure Wall Street focuses on.
With a strong report from rival Google Inc (GOOG.O) last week, some investors had built up hopes Yahoo’s earnings would be a swing factor in deal talks with Microsoft. A major beat could force Microsoft to sweeten the deal, they said.
Yahoo shares fell in extended trading to $28.32 from a Nasdaq close of $28.54. Microsoft shares rose to $30.41 from a Nasdaq close of $30.25.
Additional reporting by Anupreeta Das, Daisuke Wakabayashi and Peter Henderson in San Francisco and Kenneth Li in New York; Writing by Michele Gershberg; Editing by Braden Reddall/Andre Grenon