AABA Altaba Inc

By Deepa Seetharaman 

Yahoo Inc. on Tuesday posted an increase in third-quarter profit and said usage of its email product has increased slightly since disclosing a massive data breach that was announced last month, rare bits of good news as it clings to a deal to sell itself to Verizon Communications Inc .

The number of mail messages sent and read, as well as the number of page views, rose slightly since Yahoo's announcement on Sept. 22 that user data from 500 million accounts were stolen in a 2014 breach that the company only recently discovered, the company said.

Yahoo reported quarterly earnings of $162.8 million, or 17 cents a share, and 20 cents a share excluding certain expenses. The company also issued a stronger-than-expected earnings outlook for the current quarter.

"Frankly, I look at the numbers, they're not that bad relative to what they could have been," said JMP Securities analyst Ron Josey. "It should be somewhat more comforting to see that things aren't falling off a cliff."

But Yahoo's core advertising business continues to deteriorate. Third-quarter revenue excluding commissions paid to partners for web traffic fell 14% to $857.7 million, marking the seventh decline in the past eight periods for this key metric.

Verizon executives were generally pleased with the better-than-expected profit and stable user engagement since the breach, according to a person familiar with the company's thinking.

Mr. Josey said it was still too early to say how Yahoo traffic might fare in the months to come, and the underlying trends of Yahoo's advertising business remain weak. But Yahoo's fourth-quarter outlook and early user trends suggested the company might contain the damage from the breach situation, he said.

"In addition to our continued efforts to strengthen our business, we are busy preparing for integration with Verizon," Yahoo CEO Marissa Mayer said in a statement. She added the company was working to retain users' trust and is "heartened" by recent usage trends.

Shares of Yahoo rose 1.4% in after-hours trading.

Analysts, on average, expected the company to post adjusted earnings per share of 14 cents, according to Thomson Reuters. The beat stemmed from a bigger-than-expected boost from its stakes in Yahoo Japan and Alibaba, Mr. Josey said.

Overall revenue rose 6.5% in the third quarter to $1.23 billion, helped by a recent change in how the company reports revenue.

Yahoo expects between $260 million and $300 million in adjusted earnings before interest, taxes, depreciation and amortization in the current quarter. Analysts had expected around $245 million in the same period.

Ms. Mayer's attempt to focus the company on video and search hasn't generated meaningful revenue growth. Dissatisfaction in Ms. Mayer's performance prompted activist investor Starboard Value LP to pressure the company into a sale. Verizon announced it would buy Yahoo for $4.8 billion in July.

Revenue from "Mavens" -- a grouping she introduced last year to track mobile, video, native and social ads -- rose 24% to $524 million in the third quarter. But when stripping out a change in the way Yahoo reports revenue, Mavens revenue fell 6.3% to $397 million. This was the second-straight decline for the segment, which Ms. Mayer last year said was core to Yahoo's growth and would offset declines in its legacy business.

Yahoo is also losing share in a rapidly growing online advertising market. Yahoo will command 1.8% of the world-wide digital ad revenue this year, down from 2.4% in 2015, according to eMarketer. The data firm also said Yahoo's ad revenue will drop 10.2% in 2016 after a 3.5% decline last year.

The third-quarter earnings report comes as clouds gather around Verizon's $4.8 billion deal following Yahoo's disclosure last month of the data breach, one of the largest thefts of personal data to date. The internet company said "state-sponsored" hackers penetrated its network in late 2014 and stole personal data including names, dates of birth and encrypted passwords.

Yahoo has said the breach was discovered after the merger deal was signed in July.

Last week, Verizon's general counsel suggested the breach might allow the company to renegotiate the deal's terms; Yahoo responded by saying it was confident in its value. Analysts expect the deal will go through but may require further concessions from Yahoo.

Yahoo decided to skip its third-quarter analysts' call because of its sale to Verizon, allowing it to sidestep any thorny questions about the deal and the data breach, as well as prospects for its core business.

--Ryan Knutson contributed to this article.

Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com

(END) Dow Jones Newswires

October 19, 2016 02:48 ET (06:48 GMT)

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