Yahoo! reports positive profits - Microsoft unconcerned

Yahoo! posted a better-than-expected quarterly profit yesterday but failed to deliver the outstanding results its shareholders hoped might force Microsoft to raise its takeover bid.

Microsoft chief executive Steve Ballmer had signalled before the report's release that nothing Yahoo! said about the quarter would change its resolve. Afterward, sources familiar with Microsoft's thinking said the results gave it no reason to revalue its offer, now worth $43bn.

Check out silicon.com's latest Cheat Sheets…

♦ Google Android

♦ Video: ID cards

♦ BBC iPlayer

♦ Galileo

♦ CRM

♦ Biometrics

Ballmer said yesterday during a visit to Morocco, in comments first reported by Reuters: "I wish Yahoo! all the success with its results but it doesn't affect the value of Yahoo! to Microsoft."

Yahoo! left unchanged its previously lowered revenue outlook for the year and its shares ticked down half a percentage point in extended trade. Microsoft stock edged up by a similar amount as traders discounted the chances the software giant would raise its cash-and-stock offer, initially worth $31 a share.

Yahoo! stuck to its forecast for sluggish 2008 revenue growth of between three and 15 per cent in the face of weaker online-advertising demand in sectors such as finance, retail and travel.

Microsoft has set a Saturday deadline for Yahoo! to strike a deal or face a hostile takeover battle and a lower offer.

Jim Friedland, an analyst at Cowen & Co, said: "Microsoft is breathing a sigh of relief. Even though these are solid results, given long- and short-term challenges, there's been no overall shift in Yahoo!'s business."

He said: "Microsoft's offer is still the best offer on the table," adding that the software maker could "modestly raise" its bid just to close the deal.

Buoyed by a $401m non-cash gain on a stake in China's Alibaba.com, Yahoo!'s first-quarter net income rose to $542.2m, or 37 cents per diluted share, from the year-ago quarter's $142.4m, or 10 cents per diluted share.

Excluding one-time items and stock compensation costs, the beleaguered internet company reported a profit of $150m, or 11 cents per share. On that basis, Wall Street analysts, on average, were looking for a profit of nine cents per share, according to Reuters Estimates.

Yahoo! chief financial officer Blake Jorgensen called the results "right on track", despite the distraction of Microsoft's offer.

Jorgensen told Reuters: "We are not opposed to a deal with Microsoft. What we are opposed to is seeing it at a value that discounts the underlying value of the company."

Yahoo! said it had already spent $14m on outside advisers relating to the bid and other strategic efforts.

Sources familiar with the matter told Reuters Yahoo! was still in separate talks with News Corp and Time Warner about other types of deals.

Chief executive Jerry Yang told investors on a quarterly conference call: "We are totally committed to maximising the value of this asset. Our board and management team continue to be open to any and all alternatives, including a Microsoft deal."