Q3 results not what Yahoo needed

Is CEO Carol Bartz running out of time to prove she can grow company?

Surging profits be damned, this was a bad quarterly report from Yahoo.

The embattled Internet search engine/portal on Tuesday reported third-quarter revenue of $1.60 billion, which Yahoo says is a 2 percent increase from last year's Q3 revenue of $1.575 billion.

But it's actually only 1.65 percent higher than last year. Which sounds picky, but Yahoo's biggest flaw is its inability to grow revenue, and puffing up that 1.65 percent to a big 2 percent just highlights the problem.

True, Yahoo reported a Q3 profit of $396.1 million, or 29 cents per share, up from $186.1 million, or 13 cents per share, in last year's third quarter. But that profit included the sale of HotJobs (worth 17 cents per share). Exclude that and net income was 12 cents per share.

The real issue with Yahoo, as always, is growth. For a company to increase in value over the long-term, inevitably it has to increase revenue. Yahoo's simply not doing it.

Take a look at this Nasdaq chart showing Yahoo's quarterly financial results going back to 2008. Here are some of the revenue numbers (in billions):

Q3 2010 -- $1.601

Q2 2010 -- $1.601

Q1 2010 -- $1.596

Q4 2009 -- $1.731

Q3 2009 -- $1.575

Q2 2009 -- $1.572

Q1 2009 -- $1.580

That's a company flat-lining, standing still. And if you stand still on the Internet, you fall behind.

Contrast that with Google, which last week announced a 23 percent increase in third-quarter revenue. The search giant also increased quarterly revenue by 23 percent in this year's first and second quarters, respectively.

Naturally, the excitement over last week's rumor that AOL and possibly some private equity firms might try to buy Yahoo has all but dissipated, at least if you go by Yahoo's stock price. Shares (NASDAQ: YHOO) were down 44 cents, or 2.7 percent, to 15.49 ahead of Tuesday's earnings, on a bad day for tech stocks in general.

(Yahoo gained back only a fraction of Tuesday's losses in after-market trading, rising to 15.63.)

This disappointing, if not unexpected, earnings report can only increase the pressure on CEO Carol Bartz to show tangible progress toward reinvigorating the Internet graybeard. Bartz's pleas for patience will wear thin on investors if they're not accompanied by growth. So far they haven't been.

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