Yahoo’s (YHOO) third-quarter earnings report offers a mixed picture of the company’s condition: much better than feared, but still not good enough to launch it back into the vanguard of Internet giants.
As Yahoo gears up for its conference call to discuss earnings in the quarter ended Sept. 30, the numbers are telling part of the story: Revenue up 3 percent over the second quarter and up 14 percent from the same quarter a year earlier. Still, the $1.28 billion in revenue (excluding traffic acquisition costs) were well above the $1.24 billion expected from analysts.
Same with the bottom line: Net profit was 11 cents a share, unchanged from the 11 cents of a year ago but significantly above the grim 8 cents a share that analysts had been expecting.
Yahoo’s stock is up more than 10% in the wake of its earnings report at $29.48, its highest level in more than five months. In the past, the company has been seen as a bellwether for tech earnings because it’s usually among first in the queue. If the post-earnings rally in Yahoo - together with strong numbers from Seagate and Intel - are any indication, tech stocks could have a good month in October.
One interesting insight lies a little deeper in the numbers. Yahoo’s operating cash flow fell in the quarter, to $466 million from $474 million in the previous quarter, and also $474 million in the same quarter a year earlier.
The deterioration in cash flow is coming from its home market: Cash flow from operations fell 7 percent in the U.S. from the year-ago quarter, to $338 million, despite rising 18 percent, internationally, to $128 million. A robustness in overseas business is masking weakness at home. Revenue for Yahoo’s home market grew 13 percent on quarter.
Also notable is the guidance Yahoo offered for the full year. It had forecast revenue to be in a broad range between $4.89 billion and $5.19 billion. Now it’s narrowed it down, focusing it in the higher half of that range, while shaving some off the top estimate: Revenue is now expected between $5.02 billion and $5.16 billion.
Again, a similar narrowing is happening with operating cash flow. The old range was between $1.78 billion and $1.96 billion. Now it’s between $1.88 billion and $1.95 billion.
Narrowing these guidance targets isn’t uncommon as the year end draws nearer. But given all the uncertainty at Yahoo during a tumultuous rejiggering of the company, it’s encouraging to see Yahoo bring more precision to its financial goals, and to see it coming in at the higher end of earlier guidance.
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