Yahoo reports 11% profit boosted by Alibaba IPO


Yahoo on Tuesday reported profits soared to $542 million in the first three months of the year and renewed promises that the struggling US firm is bound for richer times.

The financial results and emphatic assurances failed to sway analysts convinced that the pioneering Internet firm won't escape the grasp of US software giant Microsoft.

Microsoft set a Friday deadline for Yahoo to accept its $44.6 billion offer or face a "proxy fight" in which Microsoft tries to replace Yahoo's board of directors.

"Yahoo has to make the hard decision of whether to call Microsoft's bluff," said Silicon Valley analyst Rob Enderle.

"And if Microsoft isn't bluffing and this goes hostile, it is going to be expensive for both companies."

Since Microsoft announced its takeover offer in February, Yahoo has feverishly launched new services and gone forward with acquisitions it contends position it to cash in on the flourishing online advertising market.

"The simple truth is that Yahoo was asleep at the wheel. Now somebody lit a fire under their butt," IDC analyst Karsten Weide told AFP.

"The stuff they are doing is interesting it's just that it takes more time to produce results. The problem for Yahoo is they don't have time."

The robust earnings report includes $401 million Yahoo took in from an initial stock offering by Chinese Internet firm Alibaba, in which it has a stake.

If the one-time influx of Alibaba cash is deducted, Yahoo's earnings are modest and far short of the blockbuster performance analysts believe is needed to fend off Microsoft.

"We believe we can significantly accelerate our revenue growth, return to our historically high margins, and double our operating cash flow by 2010," said Yahoo chief executive Jerry Yang.

"This quarter's solid performance underscores the fact that we are executing on that plan."

The profit amounted to 11 cents a share, better than the nine cents per share expected on Wall Street.

"These results are all the more remarkable when you take into account the current economic environment and the uncertainty surrounding the Microsoft takeover bid," Yang said on a conference call with analysts and reporters.

Yang added that the firm's board of directors remained firm in its conviction that Microsoft's bid "significantly undervalues" the firm.

He hinted that the board would be amenable to a higher offer by the US software giant.

"Our board remains open to any and all alternatives, including a sale to Microsoft," Yang said.

"Our board and management are committed to choosing a path to maximize stockholder value and will not enter into an agreement that does not recognize the full value of this company."

Microsoft chief executive Steve Ballmer said during a press event in Morocco on Tuesday that Yahoo's latest earnings report "does not really affect what the value of Yahoo is to Microsoft."

Microsoft wants to merge resources with Yahoo to gain ground on Internet search and advertising leader Google.

"We have a strategy for the Internet that we are very excited about," Ballmer said.

"We think we can accelerate our strategy by buying Yahoo and we will pay what makes sense for us to pay for our shareholders."

Yahoo's earnings report provides no impetus for Microsoft to up its bid, but it might do just that to end the wrangling.

"Microsoft is going to go back and raise the bid by a little bit and Yahoo, if they are smart, will accept," said Matt Rosoff, lead analyst at private firm Directions on Microsoft. (AFP)