Yahoo earnings boosted by sale of Alibaba shares

Yahoo stock rose six per cent on markets Wednesday after its earnings beat estimates, largely as a result of a big gain on the sale of part of its investment in Alibaba.

Yahoo posted earnings of 52 cents a share on revenue of $1.09 billion, beating expectations of 30 cents per share on $1.05 billion. Net profit jumped to $6.8 billion, which included $6.3 billion from its Alibaba shares.

Yahoo earned a windfall on sale of part of its 23 per cent stake in Alibaba, the Chinese e-commerce company that had a record-breaking IPO earlier this year.

But investors still have questions about the core business model at Yahoo. CEO Marissa Mayer had to defend her record, especially a series of acquisitions in a call with analysts Tuesday event.

Revenues rose just one per cent in the quarter, as sales of display ads on the web fell, but it made progress in mobile advertising, considered the wave of the future. Search revenue was up by four per cent.

Mayer defended her strategy, which has involved dozens of acquisitions of smaller firms, during a Tuesday presentation.

Acquisitions criticized

Activist investor Starboard Value LP, a New York hedge fund, says Yahoo has been wasting money on ill-advised acquisitions and a bloated payroll.

Mayer described the $1.6 billion she spent on more than 30 acquisitions as smart investments that have made Yahoo more competitive in the mobile-device market.

She also highlighted cost-cutting measures that have included closing eight offices, dumping 65 products and jettisoning about 1,600 contractors.

Yahoo's share of the roughly $141 billion worldwide market for digital advertising now stands at 2.4 per cent, down from 3.9 per cent in 2011, according to the research firm eMarketer Inc.

And while it is still working on the digital ad game, Google and Facebook have seen huge jumps in revenue.

However, the millions more spent on share buybacks seem to have mollified investors.

Mayer, a former Google executive, is the sixth CEO since 2007 to try to turn around Yahoo. It remains unclear whether she is on the right track, said Forrester Research analyst Shar VanBoskirk.

"I don't think anyone is in a hurry to get (Mayer) out of there, but the company remains a bit of a question mark," said VanBoskirk. "This is a critical time for her to demonstrate she has a long-term vision."