Yahoo Q2 2011 Report: Income Grows ......Revenue Hurts

Yahoo's second quarter report doesn't look pretty at first glance: GAAP revenue is down 23 percent. However, the operating income for the company has increased by 9 percent.

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The Key Points and Figures
Those interested in the full document can view the Q2 report online, but here are the key points.

First and foremost, Yahoo's overall revenue suffered, dropping from $1.601 billion (U.S.) in Q2 of 2010 to $1.229 billion in Q2 of 2011 – a 23 percent drop.

The figures above are for GAAP revenue, where the numbers show most unfavorably for the company. When looking at ex-TAC revenue, the company suffered only a 5 percent loss, while certain additional exclusions (for example, not calculating in the revenue share with Microsoft) can present figures of up to a one percent growth. The simple story, though, is that Yahoo's revenue is down.

That's not the whole story, however: Company income actually increased. Q2 income showed a 9 percent increase, having risen to $191 million from last year's $175 million. Net earnings are up 11 percent, while net earnings per share are up 18 percent. All of the above can be blamed on lower operating expenses, which decreased from $953 million to $885 million.

Beyond an increase in income, the company also saw increased popularity on several properties, with media properties receiving 8 percent more views than in Q2 of 2010. Yahoo also reminds us that they have a lot of value tucked away in web properties.

The top business highlight in the report reads, "Yahoo! is home to nine #1 properties globally, and is in the top three in 23 categories. Yahoo! has nine out of the top ten original video programs on the Web."

The Yahoo Trim and Slim Strategy
Yahoo has been executing a strategy that relies on reducing their investments while maintaining their most valuable assets. The biggest way this has manifested was in the Microsoft search partnership, where the Bing search engine is used to run the ads and back-end on Yahoo search. Microsoft then receives 12 percent of the generated ad revenue, which totaled to $36 million in the second quarter.

That 12 percent can be seen very visibly in the decreased revenue, as can "transition reimbursements" paid out by Yahoo. Yahoo paid Microsoft $55 million for search operating expenses and $12 million for transition costs.

However, Microsoft can also be blamed for much of the lowered cost of operations, since Yahoo has been able to slim down its investment in search thanks to the deal. For Yahoo, search investment and transition costs will continue to decrease as the remaining regions where Yahoo runs its own search back-end are migrated to Microsoft.

Things aren't looking amazing for Yahoo by any stretch of the imagination, but their game plan is coming into play and it seems to be working: The company has sacrificed revenue for income, just as they planned to. Whether this is enough to turn the company around, however, is an entirely different debate.