In the first quarter of 2008 earnings are up, employees are down, Microsoft started its attempts at a takeover, and Yahoo still found time to get into bed with Google (although the U.S. Justice Department is still out on that one).

(Note: this posting was originally aired in this week’s StepForth Weekly Newsletter)

First quarter earnings for Yahoo were higher than most experts had predicted. Sales rose by 9 percent to $1.8 billion, with an increase in net income by a sizable 282% to $542 million, compared with $142 Million for the same period in 2007. These profits were largely in thanks to Yahoo’s investment in the initial public offering of which accounted for $401 million.

In mid February Yahoo also laid off approximately 1000 employees, thus taking a significant chunk out of their payroll. While this would account for only a small percentage of the increased profit, considering that many of the layoffs involved fairly prominent and higher paid employees, it likely totals up to a sizable amount.

Analysts were expecting revenues at $1.32 billion excluding acquisition costs yet Yahoo’s first quarter revenue was, in fact, about $300 million higher at $1.35 billion.

This recently announced increase in Q1 profits has not had an impact on Microsoft’s acquisition attempt. Back at the start of February Microsoft had offered $31 per share in an unsolicited bid to purchase Yahoo and since then Yahoo has been battling this Microsoft takeover. On Tuesday, Microsoft CEO Steve Ballmer said, according to the Seattle Times, “Yahoo’s quarterly results would not affect the value of Yahoo to Microsoft.” Microsoft has also threatened that if things are not resolved by this Saturday, they will bring a lower bid directly to Yahoo shareholders.

As part of a search to find alternatives to the Microsoft takeover, Yahoo announced a test where 3% of paid ads appearing on US based Yahoo searches would actually be from Google’s AdSense program. The test is expected to last up to two weeks. According to the Silicon Valley Business Journal, this has sparked the U.S. Justice Department to look into possible antitrust applications – no word yet on the results of that investigation.

By close of day Wednesday, Yahoo shares were down $0.15 closing at $28.08 Yahoo shares rose sharply by about 50% back in February with the news of the possible Microsoft buyout, and have hovered around the $28 mark ever since.

Yahoo’s earnings release for Q1 of 2008 can be downloaded in PDF form from Yahoo Investor Relations.