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Yahoo! profits! soar! on! falling! revenues!

And that's what they call stability

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Google says the worst of the economic meltdown is behind us. But Yahoo!'s take on the matter is a bit more guarded. After its revenues took another dip during the third quarter, dropping 12 per cent year-on-year, the best Carol Bartz and company can say is that the economy is "loosening-up a bit."

Controlling more than 60 per cent of the search market, Google endured only the smallest of revenue hiccups over the last twelve months of worldwide economic crisis, and in Q3, Mountain View's revenues lept a healthy 7 per cent year-on-year. But at Yahoo! - where display ads are far more important to the bottom line - the meltdown's darkest days were far darker. You could argue they're still lingering. Revenues topped out at $1.575 in Q3, compared to $1.786bn last year.

The good news is that after some considerable belt-tightening in the wake of its 2008 third quarter, Yahoo!'s profits more than tripled in Q3 2009, from $54m to $186m.

The company also points out that revenues decreased only one percent from the second quarter, after much greater sequential shrinkage in previous quarters. "With revenue coming in above our guidance and flat sequentially, we had a solid third quarter that signals our major businesses have stabilized," CEO Carol Bartz said in a Yahoo! press release.

According to CFO Tim Morse, Bartz fell ill this morning, and she was not on the company's quarterly earnings call with reporters and analysts. So Morse has to spin that the quarter all on his own. "Overall the theme for third quarter was stabilization, as we saw strength in key areas of our business are two straight quarters of deceleration," Morse said. "I'm gonna refer to sequential trends on this call, much more than we have in the past, because they tell us much more about what's currently happening in our markets."

The company's all-important display-ads revenue was down 8 per cent from last year, but it was up from Q2, giving Yahoo! its second straight quarter of sequential growth. Search revenue was down 19 per cent year-on-year. Whereas queries were up, revenue per search was down. But as you might expect, Morse argued that search is stabilizing as well. After sharper sequential declines in the first half, he said, third quarter results declined just one per cent compared to Q2.

Of course, Yahoo! hopes to juice its search biz through a pact with Microsoft, and Morse said the company still expects the deal to close in early 2010.

After its Q2 earnings call, Yahoo! said it would feed $75m into new hires, new tech, and its very own Yahoo!-trumpeting ad campaigns - despite its continued revenue slide. But Morse said the company didn't spend quite as much as it anticipated. The spending increase was closer to $50m.

"We didn't hire as quickly as we'd planned," he said, "and that contributed to about a third of the under-run. Though we would have preferred to ramp headcount at the originally forecasted past, we're taking the time to ensure we're hiring the right people in the right places." Thus, the bigger-than-expected profit spike.

Morse avoided any Schmidtian proclamations, but he said that better display ad yields in Q3 were "a sign...of the economy starting to loosen-up a little bit and brand advertising starting to happen again." ®

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