Yahoo's Profit Down in Q2

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Yahoo reported a modest revenue increase and a considerable drop in profit for its second quarter, along the way missing Wall Street's expectations in both categories, results that are unlikely to please its nervous shareholders.

Although Yahoo managed to defuse Carl Icahn's proxy fight this week, a rare victory in its monthslong, tumultuous sparring match with shareholders and suitor Microsoft, its results for the quarter ended June 30, 2008, will probably do little to dispel doubts over its ability to survive as an independent company.

Yahoo had revenue of US$1.798 billion, a 6 percent increase from 2007's second quarter, the company announced Tuesday. Deducting the commissions it pays to its ad network publishers, Yahoo had revenue of $1.346 billion, up 8 percent but short of the $1.374 billion consensus expectation from financial analysts polled by Thomson Financial.

Net income fell to $131 million, or $0.09 per share, from $161 million, or $0.11 per share, in 2007's second quarter.

On a pro forma basis, taking into account one-time items, net income was $139 million, or $0.10 per share, a penny short of analysts' consensus expectation. Yahoo had pro forma net income of $163 million, or $0.12 per share, in 2007's second quarter.

Still, Yahoo President Sue Decker said in a statement that the company made significant advancements in its turnaround strategy during the quarter. "We remain confident that our efforts will lead to a stronger and more profitable Yahoo," she said.

Yahoo, which has been struggling on the financial and technology fronts for the past two years, has been embroiled in a corporate soap opera since Microsoft announced a bid to acquire the company in February.

That bid collapsed in May, leading to accusations from shareholders, including Icahn, that Yahoo's managers and board had purposely sabotaged the negotiations in order to protect their own financial interests, violating their fiduciary duty to shareholders.

Yahoo's management and board have denied the accusations, which have led to shareholder lawsuits, saying they negotiated in good faith and that ultimately it was Microsoft's decision to walk away. In the meantime, Yahoo has seen a steady parade of high-profile executives leave the company in recent months.

Yahoo this week managed to reach an agreement with Icahn, who had proposed an alternate slate of director candidates for the Aug. 1 shareholder meeting in order to unseat the entire board. By expanding the board and granting Icahn three seats, Yahoo convinced the billionaire investor to call off the plan. Icahn had indicated previously that his intention was to unseat Jerry Yang as Yahoo CEO and attempt to lure Microsoft back to the negotiating table, a possibility that now seems remote.

An attempt by Microsoft to acquire Yahoo's search advertising business also fell through, as Yahoo instead opted for an alternate deal to outsource part of that business to rival Google.

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