BoomTown was so glad we had this time together with Yahoo (YHOO) CEO Carol Bartz and Microsoft (MSFT) CEO Steve Ballmer, just to have a laugh or sing a song about a major Web search and advertising deal.

I liveblogged the conference call, which I updated as it happened.

Did Ballmer scream and jump up and down? Did Carol say something naughty?

Or as the companies said:

SUNNYVALE, Calif. & REDMOND, Wash., Jul 29, 2009 (BUSINESS WIRE)–Yahoo! Inc. and Microsoft will host a conference call for accredited media and financial and industry analysts at 8:30 a.m. ET/5:30 a.m. PT today, July 29, 2009, to discuss the search agreement the companies recently announced. In addition, b-roll footage will be available. The satellite feed of b-roll footage will contain broadcast footage of remarks from Yahoo! CEO Carol Bartz and Microsoft CEO Steve Ballmer, as well as corporate Yahoo! and Microsoft b-roll footage.

B-roll? More like, were Bartz and Ballmer on a roll?

To find out, read on!

5:28 am PDT: It was EARLY on the West Coast and we were being forced at first to listen to really sleepy music like you might hear in a dentist’s office.

Zzzzzzzzz…

5:34 am PDT: Memo Impresario Eric Brown was late! But, as soon as he gets on, the new Yahoo PR head began with an enthusiastic hello about the deal.

Bartz was up first, followed by Ballmer. They were clearly together in the same place, likely in Silicon Valley at some bunker.

“This is a great day for Yahoo,” she said. “It’s a game-changer and I am glad to finally be able to talk to you about it.”

Her patter was clearly scripted, but Bartz was pretty jaunty in her delivery.

And sassy enough to make the first of many dings to former Yahoo savior Google (GOOG)–not by name, but as either “the market leader” or “the competitor.”

Why not just go right to calling the search giant this deal is aimed at battling what Bartz really meant: The Borg.

Bartz stressed that this deal only covers search and the search ad business and not, say, display advertising.

And, she added, while Microsoft’s AdCenter technology will power the money-making, “search will continue to be an integral part of the Yahoo consumer experience.”

Boiling it down, Bartz said: “What this deal is really about for everyone is scale.”

Cue the next Google dig: “The combination of Microsoft and Yahoo search puts the choice back into the hands of consumers, increasingly concerned about the influence of a single player.”

Single player=Darth Vader.

5:40 am PDT: Ballmer was next. “I am so delighted to see [the deal] come to fruition,” he said.

He does not say much more except that he hoped it would “flourish and come to life over the many years.”

Ballmer sounded like someone speaking at a ribbon cutting of a copy store at the mall.

The livelier Bartz came back on, discussing the terms, hewing pretty much to what was already in the press release.

Microsoft’s AdCenter as technology. Integration. 10 years. No display deal. Separate user experience.

Now to the bucks, as Bartz noted, they add $500 million to Yahoo’s operating income, save $200 million in capital expenditures and improve annual operating cash flow by $275 million.

“At its full implementation,” she added. There is always a catch!

Bartz said Yahoo would use the money to invest in its other properties, although she was not specific.

Then, it was onto regulatory issues and getting this party started.

Bartz put on the brakes. “This deal will not happen overnight,” she said.

Actually, not even close. She predicted a closing in early 2010 and it being rolled out over the following three to six months.

Finally, Bartz thanked the tireless teams who did the deal. “With a lot of help from Steve and I,” she said and then quipped, “not always so.”

She and Ballmer were now sounding like a hip mom and dad.

5:45 am PDT: Question time!

The first one was about why the pair did not do a display deal and also how they were going to bridge the huge gap in how much each made per search compared to each other and Google.

Bartz said that the point was to keep the deal idiot-proof. “Frankly, we wanted it as straightforward and simple as possible,” she said.

Ballmer concurred: “We are taking a big bite here.”

As to the earnings gap in search, he said, “The deal in and of itself will let us close gap with the market leader.”

Ballmer tried not to say the word “Google,” but stumbled and did anyway.

The next question was about Bartz’s shift from her “boatloads of cash” quote–which she said, in an interview with me at the seventh D: All Things Digital conference in late May, was a must for a deal with Microsoft–to her new “boatloads of value.”

Simple, she said, trying to gloss it over–Yahoo did not need a big cash payment up front (and it did not get it either).

“As far as we are concerned, the boatload of cash is us preserving our revenue line,” said Bartz.

The next question was about what Microsoft gets out of this deal.

“We clearly see an upside as execution really builds,” said Ballmer.

After more money questions, there is finally one on regulator issues.

Back to Google-bashing from Ballmer.

“I suspect the competitor who may not like more competition is Google,” he said.

Microsoft General Counsel Brad Smith then jumped in and talked about working together and filings in D.C. and making the case.

He said he “looks forward to the debate,” which is just what a lawyer would say.

5:58 am PDT: Finally, the layoff question.

Bartz is clear here. Some Yahoo search employees will be dragooned over to Microsoft, some will move to other parts of Yahoo and some will be let go.

“Unfortunately, there are some redundancies,” said Bartz.

More financial questions, one on the mobile search market, one on innovation, one on scale and one on advertisers.

“Advertisers, especially smaller ones, want to make sure there is enough meaningful market for them and they don’t want to learn three platforms,” said Bartz. “They know how to enter into the Google system.”

She said “Google system” like she was talking about a gulag.

Meanwhile, Ballmer talked about how good it was to now be No. 2. Really, he did, since he was a distant No. 3 before this deal.

6:11 am PDT: Some technology question. Ballmer noted that the deal was not a “rip and replace” of Yahoo’s search for Microsoft. It will be an “integration.”

Next was a question about how this deal measured up to last year’s more money-laden offer by Microsoft.

Bartz said she didn’t just want an upfront payment, but a “true partnership,” with control over the Yahoo user interface and “real skin in the game.”

Ballmer called last year’s deal more investor-focused than operational. “The deal was different for Microsoft, not better,” he said, leaving out the cheaper part.

Finally, I get called on, and ask about who will lead the integration and how it will get done, so as not to create a huge distraction.

Bartz said it would be a “smooth transition…not that different from when Yahoo went from Overture to Panama.”

I did not have the heart to tell her that the transition of the Yahoo ad platform was anything but smooth and one of the reasons Yahoo got into the trouble it has gotten in.

Ballmer noted that the leadership that put together the deal is the leadership of the companies in the digital arena.

I also asked how the deal finally came together, especially after such historical rancor.

“It was like a snowball down a hill,” said Bartz.

But it was also a complex ball of ice, she added, noting “it was not a two-page term sheet.”

More like hundreds of pages. “There was not a high level of abstraction,” said Ballmer.

Finally, finding a kind of married groove–from that time before the random bickering sets in–Bartz noted that “dating is one thing, but having a partnership is another.”

She added: “The good news once we reached a point we believed to be advantageous, [we did a deal]…that’s how partnerships work.”

Well, exactly how it all works out, of course, still remains to be seen.

If there’s an earnings call at Yahoo, you know BoomTown is going to liveblog it!

Will Yahoo (YHOO) CEO Carol Bartz say something naughty? (Nope!) What is new CFO Tim Morse like? (Nice!) Will they say anything about the talks with Microsoft (MSFT) about a search and online advertising partnership? (No!)

Oh, it might be a corker!

The earnings results for the second quarter certainly were not.

As I wrote in a previous post:

Yahoo reported so-so second-quarter earnings results today, with a decline in revenues, but with a slightly stronger-than-expected improvement in net income.

For the three months ended June 30, the Internet giant said it had revenues of $1.14 billion, excluding traffic acquisition costs, down from $1.35 billion in the same period a year ago.

That profit was up eight percent, due to cost-cutting. Yahoo said it earned $141.4 million, or 10 cents a share, in the quarter, compared to $131.2 million, or nine cents.

That’s not really saying much, since Wall Street analysts had such low expectations, estimating Yahoo would earn eight cents. But, with a weak advertising market, it is also not that bad.”

Here’s the conference call, updated as it happened:

2:02 pm PST: Music followed by investor relations lady, who had a very nice voice.

She was quick and to the point, and soon enough Bartz was on.

First, she welcomed Morse as CFO, noting he was strong in “efficiency and process.”

Then she pointed out that the new home page for Yahoo–pictured here and you can read about it here–was “available…starting…today.”

Bartz dragged out the words, with a small dramatic flourish.

Then, it was right to the results, which Bartz was bullish on: “Considering the economy, I am pleased with the results.”

Bartz noted that “overall, we are seeing less fear in the marketplace,” although she added that she had no idea when the econalypse would be over.

“It’s easy to see it bumping along the bottom, but it’s too early to call…so, we’ll leave economic predictions to others,” she said.

She moved onto her being happy about all the new execs she had hired, noting that Yahoo was “closing in” on picking an international head (note to myself, get a Yahoo to leak the news to me asap).

2:07 PST: Morse (pictured here) came on and introduced himself. He looks like a CFO and also sounded like one too–calm, cool and collected, as it should be.

After a short talk about his background, he moved onto all the particulars of the quarter–results that had already been released, but Morse repeated them with verve.

I try to listen carefully in these explanations, but I confess that I actually don’t, unless something new happens. It didn’t.

Then Morse was looking forward, including talking some more about marketing spend coming up, as well as explaining what kind of CFO he was going to be.

2:18 PST: Back to Bartz, who started talking about well the long-troubled Silicon Valley icon was doing, even in the weak economy.

She kept calling Yahoo the “world’s biggest Internet media company,” and then said that Yahoo was an “Internet kingmaker” for other Web sites.

Well, it’s kind of true on both counts, so we’ll overlook the bragging.

Bartz then quickly moved through all the various arenas at Yahoo–from advertising to the home page to mobile–where Yahoo was trying to improve and increase its business.

She apparently is aiming to make online ads less annoying–if successful, I propose that Bartz should be awarded some medal of honor.

“We have a clear simple vision to be the center of people lives online,” said Bartz in conclusion, throwing in “kingmaker” again. “At the end of the day, we know who we are and know what we need to do to win.”

2:33 pm PST: Question time!

The first was about what Bartz thinks about Bing, the new Microsoft search engine, because it might take a while for these Wall Street analysts–reporters don’t get to ask questions–to screw up the courage to ask her outright about any Microsoft deal.

Bartz was unusually cordial, which is how someone about to be hitched needs to be.

“I think Bing is a good product…I think Microsoft should be given kudos for Bing,” she said. Hmmmm….

The next question was about the intent of Yahoo to invest in search, as opposed to display advertising. Another veiled Microsoft search deal question.

Bartz noted that Yahoo was investing in the user. Nice way not to answer the question!

2:38 pm PST: A question about spending and if there was going to be more.

Bartz noted that Yahoo was restructuring costs, rather than cutting and burning. She noted, for example, that more marketing spend was part of the plan.

Morse used a bucket analogy, and talked about draining costs back and forth, which was apt.

The next question was about advertising revenues, and whether they would grow. Also, more questions about costs.

Morse noted good strength in a lot of areas in the premium sector. As to cost structure: “We’re repositioning the business.”

2:48 pm PST:

Another cost question. I am officially ignoring it.

The next question was about how Yahoo was going to keep fixing APT, its newest advertising platform, which some think is too hard to use.

Bartz, who has insulted it in the past, was now kind of nice about it, noting that they were working on making it better.

A question about owned-and-operated search and its relationship with Yahoo’s affiliate search, which had been stronger. Not a trend, said Bartz flatly.

More about search and whether scale matters in search (another sneaky way to ask about Microsoft). “Of course scale matters,” said Bartz, who joked she would be happy to switch share positions with Google (GOOG).

A question about the new home page and its monetization and why it was announced today, as opposed to the fall, as planned.

Bartz did not really explain why or about revenue, but she sounded good.

The last question was about improvements in search share and monetization (translation: I want to ask about Microsoft, but I am too much of a wimp).

Bartz talked about better targeting, improved experience, driving relevancy and the prominent position of search on the front page. That will lead to more money, she noted.

Again, it’s not exactly an answer, but it sounded good.

Then it was over, although Bartz ended by urging everyone to “go look at the new home page.”

Yahoo reported so-so second-quarter earnings results today, with a decline in revenue, but with a slightly stronger-than-expected improvement in net income.

For the three months ended June 30, the Internet giant said it had revenue of $1.14 billion, excluding traffic-acquisition costs, down from $1.35 billion in the same period a year ago (click on the revenue chart to make it larger).

Profit was up eight percent, due to cost-cutting. The Sunnyvale, Calif.-based Yahoo said it earned $141.4 million, or 10 cents a share, in the quarter, compared to $131.2 million, or nine cents.

But that’s not really saying much since Wall Street analysts had such low expectations, estimating Yahoo would earn eight cents. But, with a weak online advertising market in a bad economy, it is also not that bad.

But Yahoo (YHOO) CEO Carol Bartz will take it for now, especially since the company still makes a lot of money, especially compared to the vast number of Silicon Valley competitors–leaving out Google (GOOG), of course.

Plus Yahoo has money to burn, with $4.2 billion in cash in the bank and marketable securities.

Here’s the Yahoo press release, minus the charts, some boring explanatory stuff and legalese (which can be found here in its entirety):

YAHOO! REPORTS SECOND QUARTER 2009 RESULTS

Company Exceeds Midpoint of Revenue Outlook Range Maintains Strong Balance Sheet with over $4 Billion in Cash and Marketable Debt Securities

SUNNYVALE, Calif., July 21, 2009–Yahoo! Inc. (NASDAQ: YHOO) today reported revenues of $1,573 million for the quarter ended June 30, 2009, a decrease of 13 percent from the second quarter of 2008. Excluding the impact of currency rate fluctuations, revenues for the second quarter of 2009 would have declined 8 percent from the second quarter of 2008.

Net income per diluted share for the second quarter of 2009 was $0.10, compared to $0.09 for the second quarter of 2008. Non-GAAP net income per diluted share for the second quarter of 2009 and 2008 was $0.16.

“I’m pleased with our results this past quarter. We established a clear, simple vision to be the center of people’s lives online, and we’re backing that vision with important initiatives to create ‘wow’ experiences for our users,” said Yahoo! chief executive officer Carol Bartz. “We’re confident that this vision will put us on the right path to growth and profitability long term. Our new homepage is a perfect example of our efforts to create innovative products aimed at increasing user engagement while offering the most compelling advertising proposition in the industry.”

“Even in this challenging economic environment, Yahoo! had a solid quarter, reflecting the strength of our offerings for our users and advertisers,” said Yahoo! chief financial officer Tim Morse. “Moving forward, our goal is to invest in the long-term health of the business so that we are positioned to capture the growth opportunities created by the economic recovery and the ongoing shift to online advertising.”

Revenues

* Total revenues were reduced by the effects of currency rate fluctuations, the sale of Kelkoo in late 2008 and lower fees revenues from voice-over IP services and subscription music offerings. Excluding the effects of these items, revenues would have declined 6 percent.

* Marketing services revenues declined 13 percent and fees revenues declined 8 percent, compared to the second quarter of 2008.

* Marketing services revenues from Owned and Operated sites were $858 million for the second quarter of 2009, a 16 percent decrease compared to $1,016 million for the same period of 2008. The decrease was driven by a 15 percent decline in search advertising revenue and a 14 percent decline in display advertising revenue.

* Marketing services revenues from Affiliate sites were $520 million for the second quarter of 2009, a 9 percent decrease compared to $571 million for the same period of 2008. The decrease was driven primarily by a shift to lower yielding inventory.

Cost Initiatives

During the second quarter of 2009, the Company recorded a $65 million net restructuring charge for real estate facilities exited, changes in sublease income estimates for previously exited facilities, write-off of property and equipment for exited facilities, and personnel severance and related costs offset by a reversal of stock-based compensation expense for forfeited awards. The Company is also continuing to implement non-headcount cost reductions.

Cash Flow and Cash Balance

* Cash flow from operating activities for the second quarter of 2009 was $342 million, a 20 percent decrease compared to $426 million for the same period of 2008.

* Free cash flow for the second quarter of 2009 was $266 million, a 15 percent increase compared to $231 million for the same period of 2008.

* Cash, cash equivalents and investments in marketable debt securities were $4,197 million at June 30, 2009 compared to $3,522 million at December 31, 2008, an increase of $675 million.

Business Outlook

GAAP revenue for the third quarter of 2009 is expected to be in the range of $1,450 million to $1,550 million. Non-GAAP operating income before depreciation, amortization, and stock-based compensation expense for the third quarter of 2009 is expected to be in the range of $330 million to $370 million. Income from operations for the third quarter of 2009 is expected to be in the range of $55 million to $65 million.

Microsoft’s earnings and revenue took a hit in its third quarter, as expected, with profits down 32 percent from a year ago on a six percent sales decline.

Before one-time charges, the software giant earned $2.98 billion, or 33 cents a share after one-time charges, on revenues of $13.65 billion.

The weak results were relatively in line with analysts’ estimates of 39 cents a share on $14.1 billion in revenue.

It was the company’s first-ever year-over-year quarterly sales drop.

But Microsoft stock was up in after-hours trading, after also rising today before the market close by 14 cents, up .75 percent, to $18.92.

Costs from layoffs of $290 million and a $420 million impairment charge on investments also hit the bottom line at Microsoft (MSFT).

The company announced those first-time mass layoffs in the previous quarter. No further layoffs were announced today, despite rumors that they might be.

The culprit for most of the bad news was the decline in consumer and business spending on computers, since half of Microsoft’s operating income comes from sales of its Windows operating system.

But its online services also got hit badly, with a 14 percent decline in revenue from a year ago to $721 million. Losses doubled to $575 million. Oof!

Thus, Microsoft execs better hightail it down to Yahoo (YHOO) some more to strike that long-simmering search and advertising partnership deal.

BoomTown will be liveblogging the earnings conference call soon, but until then, here is the Microsoft press release:

REDMOND, Wash.–Apr. 23, 2009–Microsoft Corp. today announced revenue of $13.65 billion for the third quarter ended March 31, 2009, a 6% decline from the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $4.44 billion, $2.98 billion and $0.33 per share, which represented an increase of 3% and declines of 32% and 30%, respectively, when compared with the prior year period.

The financial results for the third quarter ended March 31, 2009, included $290 million of severance charges related to the previously announced plan to reduce up to 5,000 positions and $420 million of impairments to investments. Combined, these two charges reduced earnings per share by $0.06.

Revenue in Client, Microsoft Business Division, and Server & Tools was negatively impacted by weakness in the global PC and Server markets. Revenue from enterprise customers remained stable during the quarter.

“With our continued R&D investment and our broad suite of products and services, we remain in a great position to compete and gain share in the marketplace,” said Kevin Turner, chief operating officer at Microsoft. During the quarter, Microsoft released the beta version of the Windows 7 operating system, which remains on track for a fiscal year 2010 launch. Development milestones were achieved on other products including Microsoft Office 2010, Windows Server 2008 R2 and Windows Mobile.

“While market conditions remained weak during the quarter, I was pleased with the organization’s ability to offset revenue pressures with the swift implementation of cost-savings initiatives,” said Chris Liddell, chief financial officer at Microsoft. “We expect the weakness to continue through at least the next quarter.”
Business Outlook

Microsoft offers updated operating expense guidance of $26.7 billion to $26.9 billion, including severance charges, for the full year ending June 30, 2009.

Management will discuss third quarter results and the company’s business outlook on a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today.

One of the more interesting quarterly earnings calls to watch carefully is going to be Time Warner’s in two weeks.

Why? Well, in the digital space, it’s because of its long-suffering online unit AOL and what results it will show.

More importantly, though, is what AOL’s performance will mean for the attempts Time Warner CEO Jeff Bewkes has tirelessly been making to trade it away.

The media giant will announce its third-quarter results Nov. 5 at 10:30 a.m., Eastern time.

Last quarter’s results were not too promising, to say the least, and it was due in large part because AOL dragged Time Warner (TWX) down badly.

There were declines in both revenue and operating income at AOL, which were luckily offset by strength in Time Warner’s cable television and movie studio divisions.

AOL saw its revenue drop to $1.1 billion, a 16 percent dip, with operating income off 36 percent, to $230 million. There were more subscribers lost from its slowly dying dial-up Internet service–incredibly AOL has lost 14 million in the last three years.

And that was planned, after AOL’s home page and email went free. What was not so figured out was how badly its business would be struggling to make a better margins from advertising, even as its access business dwindled.

Time Warner began to separate the two sides of AOL, an effort still in process, in order to sell them both off.

John Malone of Liberty Media (LINTA) said this summer that he would make a swap for the cash-generating access business, and there is also Earthlink (ELNK) and United Online (UNTD) in that mix.

As to the rest of the AOL business–still an advertising and content behemoth, despite its woeful descent over the years in Time Warner’s care–Bewkes has been trying to pawn it off for years now in a variety of deal-chatting with companies like News Corp. (NWS) and Microsoft (MSFT). (News Corp. is the owner of Dow Jones and this Web site.)

And, principally these days, Yahoo, with which Time Warner has been locked in endless discussions about a possible merger for months.

But, while every week the AOL side leaks the breathless news that the union is just about to be struck, that has yet to come to pass.

Still, even this past week, various execs from both companies have been meeting, discussing what the new Yahoo-AOL combo might look like.

The deal, on some level, makes sense, putting together the top graphical ad businesses online and uniting powerful content assets, as well as dominant online communications offerings.

The pair also share a strong relationship with search powerhouse Google (GOOG)–it owns five percent of AOL and does its search, and is trying to launch a controversial search ad outsourcing deal with Yahoo.

But a possible merger of AOL and Yahoo also has a strong stink of desperation about it–of two struggling companies trying to stand together so they won’t fall apart.

Of the pair, despite its weak results last week and endless turmoil over the last year, Yahoo (YHOO) is decidedly the stronger business, with obvious prospects of revival.

But its moribund stock, now hovering in the $12 a share range, has put a damper on talks, given how much Yahoo would have to give up to get AOL.

For its part, Time Warner is foolishly holding onto an $8 to $10 billion price tag from days long gone by. And if results at AOL continue on the trajectory they are on–how could they not, given the weak economic situation?–Bewkes might want to get a little more flexible.

Because things are only going to get worse. So, if a Yahoo-AOL deal is to be struck, sooner or later, for Time Warner, it had better be sooner.

Today, BoomTown will be spending the whole day–complete with lunch!–at Yahoo’s Sunnyvale, Calif., HQ to visit various and sundry execs in charge of a wide range of products.

Why? Well, as interested as I am in all of Yahoo’s always messy corporate and stock machinations, it’s just as important to get a handle on exactly what actual products and services the company is working on to get out of its quandary.

That’s important because Yahoo’s prospects have gotten so bogged down of late that even the possibility of an overpriced deal to buy Time Warner (TWX) online unit AOL, including its access business, whacked its stock yesterday.

Yahoo (YHOO) shares dropped to $12.65 yesterday, down 84 cent or 6.2 percent, partly due to the weaker market, but also because of the rumor that Yahoo was possibly going to pay too much for AOL.

That too much would be $8 to $10 billion.

The report by Silicon Alley Insider’s Henry Blodget, which included an odd Yahoo-labeled 18-wheeler semi-truck sighted near AOL, turned out to be not so solid and was later refuted by Blodget himself.

Nonetheless, it was a point well taken from the bad reaction that few think a merger is a good idea at anything other than low, low prices.

Why? Well, for one, the uncertain immediate future for the graphical ad business–big earners at AOL and Yahoo–going forward.

Other key issues: AOL’s growing weakness. Its revenue (half of which comes from the ISP business, by the way) and also its operating income are down.

Even the less stellar performance of Yahoo of late looks good in comparison.

Of course, the pair are still talking in that lugubrious way, as has been reported previously here.

And, if forced to bet, I would suspect there will be a deal done eventually.

But, as they say, god–or the devil, as the case may be–is in the details.

Until then, as I hope to see today at Yahoo, both it and AOL have got to get busy making their standalone businesses shine a lot better than they do now.