You know life is good when Yahoo! (NASDAQ:YHOO) sees its third-quarter profits more than triple, in large part because of realized gains after trimming its stake in rival Google (NASDAQ:GOOG). You go, Yahoo! Show the world that there's money to be made in selling Google -- the ultimate diss.
However, even if you back out the liberating hand it played during Google's market debut, Yahoo! still turned in a great period. Revenue beyond its traffic acquisition costs soared by 84% to $655.4 million while earnings per share went from a nickel to a heartier $0.09 showing.
Yes, paid search is obviously still booming, and one can only imagine merchants even more anxious to bid up relevant keywords as we enter the seasonally potent holiday quarter.
So it should come as no surprise to see Yahoo! expecting sequential improvement, with anticipated fourth-quarter revenue of between $710 million and $760 million after backing out its traffic acquisition costs. If anything, those sums may prove to be conservative as they imply top-line growth of less than 50% from the $511 million the company produced during last year's final quarter after backing out the same traffic acquisition costs.
Then again, it was during that quarter that Yahoo! recognized that paid search had become so important to the company that it began adjusting its reported revenue to account for the sums it was paying out to its distribution partners in exchange for displaying its paid search results.
Paid search is why Yahoo! and Google are booming these days. It's also why smaller players such as FindWhat.com (NASDAQ:FWHT) and Ask Jeeves (NASDAQ:ASKJ) have turned in healthy returns.
Our new Rule Breakers newsletter seeks out companies that reinvent the game as we know it. Paid search -- in which folks can bid as little as pennies for an interested lead -- has certainly reinvented the search engine and contextual advertising games. With a win-win-win scenario in which the portals, the merchants, and the end users all come out ahead, this was one rule that was just begging to be broken.
What did you think of Yahoo! and its third-quarter showing? Are you ready for Google's quarterly report next week? All this and more in the Yahoo! discussion board. Only on Fool.com.Longtime Fool contributor Rick Munarriz does Yahoo!, but that doesn't mean that he is buying it breakfast or adding it to his portfolio. He does not own shares in any company mentioned in this story.
