Yahoo earnings could provide leverage

SAN FRANCISCO -- The results should embolden Yahoo in its resolve for a sweetened bid from Microsoft or fend off the takeover entirely, financial analysts say. But Microsoft is holding firm on its offer, CEO Steve Ballmer insisted.

"We think we can accelerate our strategy by buying Yahoo and will pay what makes sense for our shareholders," Ballmer said earlier Tuesday. "I wish Yahoo all the success with its results but it doesn't affect the value of Yahoo to Microsoft."

Ballmer has set a Saturday deadline for Yahoo's board to accept the bid or face a proxy contest by Microsoft to oust Yahoo's 10-member board.

The Internet media company earned $542 million, or 37 cents a share, during the quarter, compared with $142 million, or 10 cents per share, in the year-ago quarter. Excluding one-time items, Yahoo earned 11 cents per share.

Revenue rose 9% to $1.8 billion. Excluding traffic acquisition costs, revenue rose to $1.4 billion.

Financial analysts, on average, had forecast earnings per share of 9 cents on revenue of $1.3 billion, excluding traffic acquisition costs.

"We have the right strategy, and it is bearing fruit," Yahoo CEO Jerry Yang said in a conference call.

Nonetheless, Yahoo didn't raise its revenue outlook for the remainder of year.

The news sent Yahoo shares down 29 cents to $28.29 in after-hours trading; they closed at $28.54 in regular trading.

Microsoft shares dipped 17 cents, to $30.25, in regular trading.

The results underscore improvements in Yahoo's online advertising business after three years of dismal results, and a large gain on an ownership stake in Alibaba.com, a leading e-commerce site in China. What is more, Web traffic on Yahoo increased 6%, to a monthly average of 114.1 million unique visitors in the first quarter, compared with the year-ago quarter, according to Nielsen Online.