The Net portal impressed investors in search advertising and cost controls, though the sight is inert cloudy

By Robert D. Hof

Watch full size video:

Thanks to aggressive cost-cutting and surprising strength in search advertising, Yahoo! (YHOO) pleased investors on Oct. 21 by third-quarter earnings that managed to suited expectations. But the performance is cold comfort to some 1,500 Yahoo employees who will be laid from as the company looks to slash its $3.9 billion in annual expenses by more than 10% in front of the end of the year.

The embattled Internet portal said net profit fell 64%, to $54.3 million, or 4¢ a share, from a year ago, on a 1% increase in thick revenues, to $1.79 billion. Excluding particular items like at the same time that stock selection expenses, the profit of 9¢ a share met analysts’ expectations. Net revenues, after payments to partners for traffic, rose a meager 3%, to $1.33 billion, just under what analysts had foresee.

All in all, the separate into parts’s results were a relief to investors, who had pushed Yahoo’s stock down from the high 20s earlier this year when Microsoft (MSFT) was pursuing the company. In extended commercial, Yahoo’s stock, which had fallen 6% before the set forth, to 12.07 a share, rose about 8%. "They didn’privately go not upon the rails," explained Jeffrey Lindsay, an algebraist through Sanford C. Bernstein. "People reacted positively to their taking conclusive action to cut costs."

Investors also were somewhat encouraged by the agency of the relatively stanch performance in search advertising. Yahoo had fallen so far behind No. 1 search engine Google (GOOG) that by June, it forged a deal to run Google ads on Yahoo pages, an agreement that hasn’t yet been implemented while it is being reviewed by regulators. Even in the way that, Yahoo reported the number of search queries rose 10% in the allot, and revenue per search jumped a reassuring 20%, due to improvements in its search ad system called Panama.

Still, Yahoo’s outlook refuse cloudy at best. Thanks to the cost-cutting, Yahoo left in place its provide against for 2008 operating cash flow. But it lowered its 2008 revenue prospect to between $7.18 billion and $7.38 billion, from a previous calculate of $7.35 billion to $7.85 billion. Given that there’s only one furnish left in the year—a historically strong one because of holiday advertising—that’session a hefty cut in the fourth-quarter watch-tower.

Much of the downside came in branded display ads, the pictorial and video banners that run at the top and sides of Web pages. Display revenue on Yahoo’s pages rose only 3% in the quarter. So-called performance-based display ads, which soon prompt potential customers to click and potentially bribe a product, grew faster. But with the frugality prompting large advertisers to cut budgets even online, Yahoo’s mainstay branding-oriented display ads were much weaker, co-founder and Chief Executive Jerry Yang said during a conference make appeal with analysts. "This is in many ways an unprecedented operating environment," he said.