Yahoo’s Revenue Grew Only 2% in Q3

Yahoo's uninspiring quarterly sales forecast disappointed Wall Street and underscored how the one-time Internet leader is struggling to keep up with Google and Facebook.

The third quarter rise in profits indicates a modest recovery as the revenue remained flat. Regaining the past glory is still a distant dream for the Sunnyvale, California based company.

Yahoo’s net income for the quarter more than doubled to $396 million, up from $186 million in the comparative quarter last year. On the other hand, revenue climbed merely 2 percent to $1.6 billion.

"We delivered a solid quarter with good display advertising revenue growth, big gains in operating income, and margins that were double what they were last year," Bartz said.

Investors have pressured Yahoo, the leader in display advertising, and Chief Executive Carol Bartz to deliver growth and revive its stock price, amid talk that private equity firms are exploring a buyout of the $20 billion company.

"She was already on the hotseat. I don't think she's off the hotseat. The results have not shown any kind of real improvements," analyst Yun Kim of Gleacher & Co said of Bartz.

During a conference call with analysts on Tuesday, Bartz defended the company's progress on her watch, citing improvements to Yahoo's technology that have made it nimbler, as well as a doubling in operating margins to about 12 percent in the third quarter.

"We're working to reverse years of decelerating growth," said Bartz, who joined in 2009 and has since laid off staff and shed various Web businesses.

Bartz did not comment on the private equity talk. Yahoo shares have gained more than 6 percent since reports last week that a variety of private equity firms, including Silver Lake Partners, were exploring a potential buyout of the company — possibly in partnership with the likes of AOL Inc or News Corp.

"It would make sense if they did something with AOL because the business is at the point where it's a game of scale," said UBS analyst Brian Pitz.

"Having the largest amount of display advertising … and ability to take out a large amount of costs, could be pretty compelling, but it's easier said than done. There's a lot of politics involved and reasons why it wouldn't happen."

Sources have said any buyout deal would be contingent upon Yahoo selling its 40 percent stake in China's Alibaba Group. This would drastically reduce Yahoo's market value of almost $20 billion now, making a deal more feasible.