Yahoo Financial Health Continues to Drop, Extends Revenue Guarantees Deal with Microsoft

Yahoo has revealed its financial results for the third quarter of 2011. The company reported both a drop in revenue and a drop in profits, but the numbers were higher than analyst expectations, resulting in a slight uptick in share price.

Otherwise, there's not much else to celebrate, revenue continues to fall, though Yahoo did manage to extend search ad revenue guarantees from Microsoft, as part of their search alliance, which were set to expire next year.

Yahoo brought in $1.072 billion, 0.78€ billion in Q3 2011, after deducting the traffic acquisition costs, i.e. what it pays other companies that direct traffic to its sites, five percent less than in the same quarter of 2010.

Operating income was $177 million, 128.8€ million, also a drop from $189 million, 137.6€ in 2010.

Yahoo is once again blaming the poor results on the underperforming search deal with Microsoft. And it doesn't look like Microsoft has too much to say in its defence.

"GAAP revenue was $1,217 million [886.1€ million] for the third quarter of 2011, a 24 percent decrease from the third quarter of 2010, primarily due to the required change in revenue presentation related to the Search Agreement and the associated revenue share with Microsoft," Yahoo said in Q3 results report.

"Adjusted... diluted earnings per share increased 32 percent to $0.21 [0.15€] in the third quarter of 2011, compared to $0.16 [0.11€] in the third quarter of 2010," it said.

Analysts were expecting $0.17, 0.12€ earnings per share, on a revenue of $1.09 billion, 793€ million.

Microsoft once again paid $53 million, 38.5€ million as part of the revenue guarantees it signed up for to get the search alliance deal done. The guarantees ensure that if, for whatever reason, Yahoo fails to meet a certain search ad revenue target, Microsoft has to cover the gap.

These guarantees were initially supposed to expire on March 31 next year, however, due to the continued poor performance, this part of the deal has been extended to March 31, 2013.