Yahoo Inc.'s (YHOO) first-quarter earnings rose a better-than-expected 28% as the online media giant's advertising revenue crept up, driven by improvement in its search business.
Yahoo's once high-flying ad business has been stuck in rut over the past few years as its revenue from display ads declines. Results had also slumped last year in Yahoo's search business, which the company outsourced to Microsoft Corp. (MSFT) through a revenue-sharing agreement.
With Yahoo's past earnings growth coming from cost reductions, investors are looking to new Chief Executive Scott Thompson, who left eBay Inc. (EBAY) unit PayPal to join Yahoo in January, to articulate a plan to return the company to growth.
Thompson outlined the strategy this month, saying he will split Yahoo into three main groups focused on consumer-focused websites, regional ad relationships and technology assets that include data centers and Yahoo's ad platforms.
The new strategy comes after Yahoo confirmed it would cut 2,000 jobs, or 14% of its global work force, in an effort to redeploy its resources more effectively.
In the latest quarter, Yahoo's core display-ad business reported 3.6% lower revenue after traffic-acquisition costs. Search ad revenue increased 7.6% on that basis.
By comparison, rival Google Inc. (GOOG) last week saw its top line jump 24% to $8.14 billion after traffic acquisition costs. The increase led to a higher first-quarter profit as Google's market-dominating search engine continued to see its number of clicks increase, though the amount advertisers paid per click fell.
Yahoo posted a profit of $286.3 million, or 23 cents a share, up from $223 million, or 17 cents a share, a year earlier. Excluding restructuring charges and other adjustments, per-share earnings rose to 24 cents in the latest quarter. Wall Street was expecting a 17-cent profit, according to a poll by Thomson Reuters.
Total revenue edged up 0.6% to $1.22 billion, while revenue excluding traffic-acquisition costs--commissions paid to partners--grew 1.2% to $1.08 billion. The company's January guidance called for revenue between $1.03 billion and $1.11 billion.
Operating margin narrowed to 13.9% from 15.6%.
For the second quarter, Yahoo forecast revenue between $1.03 billion and $1.14 billion excluding commissions paid to marketing partners, bracketing analysts' average estimates for $1.08 billion of revenue.
Shares rose 1.7% to $15.27 after hours. The stock had declined 9.7% over the past year through Tuesday's close.
-By Drew FitzGerald, Dow Jones Newswires; 212-416-2909; Andrew.FitzGerald@dowjones.com