NEW YORK Every investor on Wall Street knew Yahoo! would pull out all the stops in its attempt to put its first-quarter results in a positive light so that Microsoft might increase its takeover bid, and the No. 2 Internet search engine didn't disappoint.
But just before Yahoo! reported that it beat expectations and raised its guidance for full-year operating income, Microsoft CEO Steve Ballmer told Reuters that Yahoo!'s results, one way or the other, wouldn't affect its bid, which was for $44.6 billion though fluctuating depending on the price of Microsoft stock.
Yahoo! CEO Jerry Yang wasted no time Tuesday addressing the Microsoft bid in his prepared remarks before analysts had a chance to ask about it. The bid, he said, "substantially undervalues" Yahoo!.
He also reiterated that he is "open to any and all alternatives, including a sale to Microsoft." Those alternatives also include partnerships with Google -- already being tested -- and some undisclosed ideas that could involve News Corp. and its MySpace or Time Warner and its AOL, though Yang didn't talk specifics Tuesday.
Yahoo! said its net income surged 280 percent in the first quarter to $542.2 million, with $401 million of that being a noncash gain from the initial public offering of Alibaba.com, the Chinese Internet portal partially owned by Yahoo!.
When the Alibaba gain is stripped from the results, Yahoo! earned 11 cents per share, which is 2 cents better than analysts were expecting.
Revenue rose 9 percent to $1.82 billion, with $1.3 billion coming from the U.S. and $510 million from Yahoo!'s international business. Last week, competitor Google flaunted its worldwide appeal by reporting more revenue from its international business than from the U.S. for the first time in its history.
After subtracting the money Yahoo! pays its advertising partners, revenue was $1.35 billion, besting analysts' expectations by $30 million.
Yang called the results "extraordinary," though questions remain whether they were crisp enough to warrant a bigger bid from Microsoft or another company. Based on Microsoft's closing price Tuesday, the bid stands at just under $30 per share of Yahoo! stock, which closed at $28.54.
Just before Yahoo! reported earnings Tuesday, a CNBC stock picker was recommending that traders buy Yahoo! on the assumption that Microsoft will raise its bid to $33. Others have predicted that rather than engage in a costly proxy battle, as Microsoft has threatened, the world's largest software maker would go as high as $35 a share, putting Yahoo!'s value at about $50 billion, less than half of what it was worth eight years ago near the height of Internet mania on Wall Street.
Analysts are expected to grill Microsoft executives about their next Yahoo! move during their conference call after the company reports earnings on Thursday.
Although Yahoo!'s results were generally impressive, its 9 percent revenue growth paled in comparison with Google, which last week reported a 42 percent revenue climb in the first quarter to $5.2 billion.