Yahoo Reports Jump in Profit; Suitor Microsoft Is Unimpressed

Yahoo reported first-quarter results yesterday that surpassed Wall Street's expectations, but analysts said it might not be enough to fend off an unsolicited takeover bid from Microsoft.

The Internet portal said it earned $542 million, or 37 cents a share, compared with $142 million, or 10 cents a share, in the first quarter of 2007. Revenue grew by 9 percent, to $1.82 billion.

Yahoo co-founder and chief executive Jerry Yang used the results to underscore his previous arguments that Microsoft's $44.6 billion offer undervalues the company.

"The results we are delivering are extraordinary," Yang told analysts during a conference call. "Hard work lies ahead, but we are pursuing the right strategy."

Since 2005, Yahoo's quarterly earnings reports have been marked by sagging profits and disappointing revenue growth. But yesterday's report was notably rosier.

The results included a one-time gain of $401 million from the initial public offering of Alibaba.com, a Chinese Internet company in which Yahoo has a stake. Excluding that gain, Yahoo earned 11 cents a share; analysts surveyed by Bloomberg had expected 9 cents a share.

The earnings announcement was the latest move in a struggle among the nation's leading Internet companies that began in January when Microsoft made its cash-and-stock offer to buy Yahoo.

Microsoft officials said the combination of Microsoft and Yahoo may be the only way to keep up with Google in the race for online advertising, which is estimated at $21 billion a year in the United States and growing rapidly worldwide.

The largest chunk of online advertising is search advertising, or ads placed next to Internet search results. Google dominates that area, with Yahoo and Microsoft running a distant second and third, respectively.

Yahoo and Google have both objected to Microsoft's takeover offer, though for different reasons.

Yang and the Yahoo board have argued that the company is worth far more than Microsoft's $31-a-share offer. Yang reiterated that position yesterday by saying that the bid "substantially undervalues" Yahoo and that the company has been "expeditiously exploring alternatives."

Among those alternatives is a tentative agreement with Google to provide search ads, though Yahoo President Susan L. Decker said yesterday that it would be "premature" to judge the ongoing test of that system.