Yahoo! So-So Quarter Basically In Line

For Thomas' preview heading into the Yahoo! conference call, please click here.

Yahoo! (YHOO - commentary - Cramer's Take) reported a quarter that was below the "official" expectations, but given the news and commentary from everybody remotely related to Internet advertising, the quarter was actually OK and not indicative of company-specific weakness.

For the quarter just ended, Yahoo! reported earnings per share of 10 cents on revenue (ex-traffic-acquisition costs (TAC)) of $1.346 billion (lighter than expected). Operating income declined 45% year over year to $101 million, but a fair amount of operating income went to hiring investment bankers to fend off Microsoft (MSFT - commentary - Cramer's Take) and Carl Icahn.

Looking at guidance, management sees third-quarter GAAP revenue of $1.78 billion to $1.98 billion and full-year 2008 revenue of $7.35 billion to $7.85 billion. It did not provide guidance on TAC, but it usually runs about 25% to 26% of total revenue. Therefore, my best guess as to where Wall Street will take third-quarter revenue tomorrow is $1.335 billion to $1.485 billion. The Street is at $1.4 billion, so it is essentially in line.

The international segment did a little better than domestic, but the company did say that it saw a little pricing pressure on the high end of advertising rates. Overall, though, the whole call sounded like a lot more of the same. Management talking about how it is executing on its strategy and looking for ways to maximize shareholder value. I think the Street wishes that Yahoo! would do less talking and more executing.

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At the time of publication, Thomas had no positons in stocks mentioned, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm?s senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor?s degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.