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After the bell today, Yahoo! Inc. (YHOO - Analyst Report) reported Q1 fully-diluted earnings per share of 34 cents (accounting for a restructuring reversal; the headline number was 38 cents per share) on $1.07 billion in revenues. This was a little light in sales, as the Zacks Consensus was for $1.1 billion, but Yahoo appears to have hit a homer on EPS.

...Yet the stock is down big in after-hours trading. So what gives?

A couple of the touchstones for Yahoo in its Q1 earnings report was guidance (which was a little less than expected) and whether search query numbers were still down (they were, by -11%). Also, Yahoo posted the worst year-over-year decline in display ads in more than two years.

So it would seem it pays to not judge a book by its cover. The after-market sure hasn't: shares of YHOO are down around 3.5% right now, following a 0.75% dip before the bell.

Alright then, so why the big earnings beat? Is it because Yahoo also decided to hereby report earnings minus stock-based compensation going forward, thereby throwing a monkey wrench into analysts' estimates from the past quarter? Not really, actually; this new accounting merely impacts what they call their non-GAAP comparison.

You want the real scoop on this impressive 36% positive earnings surprise? Check Yahoo's significant reductions in traffic acquisition costs (TAC). So although the company brought in slightly less on the revenue side in the quarter, they reduced TAC costs significantly -- a big plus.

It's also now commonplace for Yahoo to blow out quarterly estimates: over the previous 4 quarters, the company had averaged a 35% earnings beat. Also, analyst estimate revisions had all been to the upside over the past 7, 30 and 60 days. For this reason, Yahoo has earned a Zacks Rank #1 (Strong Buy).

Certainly Yahoo has many more boulders to push up the hill. But perhaps this after-market sell-off is a tad unwarranted, and may be a good opportunity to get in. We'll have more on the full earnings report tomorrow morning, so please stay tuned...

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