Spending fuels Yahoo's first gain in three years

Yahoo! Inc., the top U.S. Web portal, had its first sales gain in more than three years as customers spent more on Web advertising, giving an early boost to turnaround efforts by Chief Executive Officer Scott Thompson.

First-quarter revenue, excluding sales passed on to partner sites, rose 1 percent to $1.08 billion, Sunnyvale, Calif.- based Yahoo said this week. That tops $1.06 billion, the average of analysts' predictions compiled by Bloomberg, and is the first increase since the third quarter of 2008. Shares rose in late trading.

The U.S. online-ad market grew 23 percent in the first quarter as corporations devoted more marketing dollars to the Web, according to eMarketer Inc. Thompson, who took over as CEO in January, announced job cuts and a reorganization earlier this month in his drive to lift profit, reverse a sales slump and lure back users lost to Google Inc. and Facebook Inc.

“I don't think expectations were too high going in,” said Herman Leung, analyst at Susquehanna International Group in San Francisco who has a neutral rating on Yahoo. “The search revenues came in a little bit better than expected.”

Sales and profit this quarter may also top estimates. Revenue will be $1.03 billion to $1.14 billion, Yahoo said. That compares with $1.08 billion projected by analysts. Income from operations in the second quarter will be $115 million to $195 million, Yahoo said, compared with of the average $164.1 million forecast compiled by Bloomberg.

Display-ad comeback?

Search-advertising revenue, excluding sales passed on to partners, increased 8 percent to $384 million, compared with a 4 percent decline for display, the category that includes banners, boxes and videos adorning Web pages.

Display advertising should return to growth in the current period, Chief Financial Officer Tim Morse said in an interview.

Shares climbed as much as 4.6 percent in late trading, after earlier rising 1.5 percent to $15.01 at the close in New York. The stock has decreased 6.9 percent this year.

First-quarter profit, excluding some items, was 24 cents, beating the average 17-cent analyst estimate compiled by Bloomberg. Net income attributable to the company rose 28 percent to $286.3 million, or 23 cents a share, from $223 million, or 17 cents, a year earlier.

Thompson, formerly the president of eBay Inc.'s PayPal unit, earlier this month announced the company would cut about 2,000 jobs. Last week, he outlined a restructuring plan that organizes the company around three areas, including consumers, geographic regions and technology. The consumer division will focus on media, commerce and so-called connections, which include Web search and email, Thompson said.

‘Fundamentally rethought'

“Over the last 60 days, we've fundamentally rethought every part of our business,” Thompson said last week in a letter to employees that was obtained by Bloomberg News.

Still, he's grappling with a planned proxy fight by investor Third Point LLC, which owns about 5.8 percent of the company. The investment firm is trying to get four nominees, including Third Point CEO Daniel Loeb, onto Yahoo's board.

Yahoo added three new independent directors last month, after failing to reach an agreement with Third Point to put some of the investor's picks on the board. Third Point, which had wanted the company to address topics that included display advertising and management in connection with first-quarter results, said the company needs to do more to drive growth.