Yahoo had its third quarter earnings call yesterday and the news wasn’t pretty. I’m not really sure how much the economy can really be blamed for how dismal the news was. Search advertising should be one of the last sectors within advertising as a whole to be affected by the economy.

Here’s something else to consider: While companies are looking to streamline their operations in order to save costs, they often look to technology. Companies like Google who are investing in cloud computing or other technologies that create efficiencies are making the most of this unique opportunity and coming out ahead. They beat the street with their Q3 earnings. Apple had a good earnings call yesterday with their sales of laptops and iPhones.

So when you read the quote by Jerry Yang blaming the economy, don’t be surprised if your eyes roll.

We already know that Yahoo is cutting 10% of its workforce. But many have been saying for a long time that the workforce was already bloated. I feel for the Yahoo’s because it is maddening to work at a place where layoffs are imminent. Productivity goes down and everyone speculates whose job is safe and who needs a box for their things.

The press release with all the data points for the earnings is below. All the major news organizations are focused squarely on the 64% decline in net income.

Yahoo! Reports Third Quarter 2008 Financial Results

Revenues - $1,786 Million
Operating Income - $70 Million
Operating Income Before Depreciation, Amortization, and Stock-Based
Compensation Expense - $410 Million

SUNNYVALE, Calif. – October 21, 2008 - Yahoo! Inc. (Nasdaq: YHOO) today reported results for the third quarter ended September 30, 2008.

“As economic conditions and on-line advertising softened in the third quarter, we remained highly focused on our 2008 strategy to invest in initiatives that enhance not only our long term competitiveness, but also our ability to deliver for users and advertisers in this more difficult climate. We have been disciplined about balancing investments with cost management all year, and have now set in motion initiatives to reduce costs and enhance productivity,” said Jerry Yang, co-founder and chief executive officer, Yahoo! Inc. “The steps we are taking this quarter should deliver not only near-term benefits to operating cash flow, but should also substantially enhance the nimbleness and flexibility with which we compete over the long term. We enter this slowing market with competitive advantages as the destination of choice for consumers and a leader in providing online advertisers with the broadest set of advertising management tools and products in the industry. We plan to continue building on those strengths.”

Third Quarter 2008 Financial Results

Revenues were $1,786 million for the third quarter of 2008, a 1 percent increase compared to $1,768 million for the same period of 2007.
Marketing services revenues were $1,563 million for the third quarter of 2008, a 1 percent increase compared to $1,544 million for the same period of 2007.
Marketing services revenues from Owned and Operated sites were $1,002 million for the third quarter of 2008, a 9 percent increase compared to $923 million for the same period of 2007.
Marketing services revenues from Affiliate sites were $561 million for the third quarter of 2008, a 10 percent decrease compared to $621 million for the same period of 2007.
Fees revenues were $224 million for the third quarter of 2008, compared to $224 million for the same period of 2007.
Revenues excluding traffic acquisition costs (“TAC”) were $1,325 million for the third quarter of 2008, a 3 percent increase compared to $1,283 million for the same period of 2007.
Operating income for the third quarter of 2008 was $70 million, a 53 percent decrease compared to $150 million for the same period of 2007.
Operating income for the third quarter of 2008 includes incremental costs of $37 million incurred for outside advisors related to Microsoft’s proposals to acquire all or a part of the Company, other strategic alternatives, including the Google agreement, the proxy contest, and related litigation defense (collectively, the “strategic alternatives and related matters”).
Operating income before depreciation, amortization, and stock-based compensation expense for the third quarter of 2008 was $410 million, a 12 percent decrease compared to $466 million for the same period of 2007.
Operating income before depreciation, amortization, and stock-based compensation expense for the third quarter of 2008 includes the incremental costs related to the strategic alternatives and related matters noted above.
Cash flow from operating activities for the third quarter of 2008 was $347 million, a 24 percent decrease compared to $457 million for the same period of 2007.
Free cash flow for the third quarter of 2008 was $215 million, a 31 percent decrease compared to $310 million for the same period of 2007.
Net income for the third quarter of 2008 was $54 million or $0.04 per diluted share compared to $151 million or $0.11 per diluted share for the same period of 2007.
Non-GAAP net income for the third quarter of 2008 was $123 million or $0.09 per diluted share compared to non-GAAP net income of $153 million or $0.11 per diluted share for the same period of 2007.
“Despite a tougher revenue climate, we were able to stay focused on our strategic objectives, launching several major product initiatives that have been underway for many months,” said Sue Decker, president, Yahoo!, Inc. “These include the beta release of our new home page, which will leverage one code base globally; our new universal profile management tool at profiles.yahoo.com which is the first step toward rewiring the social graph on Yahoo!; and the launch of APT from Yahoo!TM, a transformative digital advertising platform. We delivered on our product roadmap with high quality and lower expenses than originally anticipated. Now we are conducting a deep review of our cost structure to identify more opportunities to enhance efficiency and build a stronger and more profitable Yahoo!.”

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