Yahoo beats expectations, but faces cost pressures

(MoneyWatch) Yahoo (YHOO) on Tuesday reported that profits were up 28 percent for the first quarter. Revenue at the Internet company was $1.22 billion, with sales after traffic-acquisition costs up 1 percent from the year-ago period.

Despite that growth, income from operations at Yahoo was down by 11 percent, with the company's costs increasing 2.7 percent. Some of that may be due to the its ongoing restructuring. Yahoo's earnings were also boosted by its partial ownership of other businesses, which likely means its Asian holdings.

That increase represented more than 31 percent of the company's net earnings, making the possibility of Yahoo selling off its Asian interests even more significant for the company's future. The market value of Yahoo's partial ownership of Yahoo Japan and Alibaba.com combined is $8.9 billion, or nearly half of the company's total market cap.

On a more positive note, Yahoo said that it has seen a 7 percent year-over-year increase in unique visitors and a 45 percent jump in cash flow from operations. Free cash flow increased by 250 percent year-over-year, but was down by 40 percent from the previous quarter.

Search revenue after traffic acquisition costs was up 8 percent from the same period last year, but the critical area of display ads, a category of income that Yahoo depends on for growth, was actually down 4 percent.

Yahoo's stock was up about 0.5 percent in after hours trading.