Earlier today, the top management of Alibaba.com, the fast-growing Chinese e-commerce site resigned after an internal company investigation determined that thousands of fraudulent sales were taking place.

Out the door: CEO David Wei and COO Elvis Lee, who took the blame a “systemic breakdown of [Alibaba.com's] culture of integrity.” The company, which is publicly traded, is largely owned by the Alibaba Group.

As many know, Yahoo owns a large stake of the parent company, which is one of the most significant in the critical China market. The Alibaba stake makes up a big chunk of its market valuation.

“Over this past month, I’ve experienced a lot of torment, a lot of frustration, a lot of anger…This is the pain we suffer as we develop, a price that we pay as part of our growth, and it hurts!,” wrote Alibaba.com Chairman Jack Ma in an internal email to employees–called Alirens–today, which you can see below.

Jonathan Lu, who heads Alibaba Group’s Taobao retail e-commerce unit, was named to take over for Wei.

Here is an internal email, obtained by BoomTown, Ma (who will be, as it turns out, appearing at the ninth D: All Things Digital conference in June):

Fellow Aliren:

As we have announced today, the B2B board of directors has accepted the resignations of B2B CEO David Wei and COO Elvis Lee. Additionally, former senior VP of B2B HR Kangming Deng has resigned his post as Chief People Officer of Alibaba Group in acceptance of responsibility and will be demoted to a different post.

Several months ago, we discovered that some of our B2B China Gold Supplier (CGS) members were suspected of fraudulent activity. What made it shocking was evidence indicating that certain members of the CGS sales team knowingly allowed, or in some cases even helped, these fraudulent companies join the Alibaba.com marketplace.

We formed a special task force to investigate the situation. According to the preliminary results of a month-long inquiry, we found 1219 CGS (1.1% of all Gold Suppliers) who joined in 2009 and 1107 CGS (0.8% of Gold Suppliers) who joined in 2010 were engaged in fraudulent activity. These fraudsters had joined the Alibaba.com marketplace for the sole purpose of exploiting the platform that we’ve labored to build up over the past 12 years to defraud overseas buyers. At the same time, the investigation confirmed that nearly 100 CGS sales staff knowingly allowed fraudsters to become CGS members so that they could “make their numbers” and receive commission income.

Any tolerance of this type of affront to business ethics and company values is a crime against the rest of our customers and Aliren who remain honest. We must take measures to safeguard the values of Alibaba! All the colleagues who were directly or indirectly involved must be held responsible; more importantly, B2B’s management team must assume primary responsibility. We have already terminated the storefronts of all 2,326 CGS members suspected of fraud, and we have asked law enforcement authorities to assist us in our investigation.

Since the day that Alibaba was established, pursuit of profit has never been our main goal. We have no interest in turning the company into a mere money-making machine. Rather, we have long held firm to our mission of “making it easy to do business anywhere.” When we say “customer first,” we mean that we’d rather sacrifice growth than do anything that would jeopardize our customers’ interests, much less be a part of any blatant fraud.

Over this past month, I’ve experienced a lot of torment, a lot of frustration, a lot of anger…

This is the pain we suffer as we develop, a price that we pay as part of our growth, and it hurts! But we have no choice. It is not possible for us to be mistake-free; we may from time to time commit errors of judgment, but we will absolutely not err by compromising our principles. If we do not face up to reality and find the courage to take painful action, Alibaba will no longer be Alibaba and our pursuit of our 102-year dream and mission will become nothing but a joke!

This world does not need another Internet company, much less another company that can make money;

What this world needs is a company that is more open, more transparent, more sharing, more responsible, more global;

What this world needs is a company that is grounded in society, serves the interests of society, and accepts the responsibilities of society;

What this world needs is a culture, a soul, a belief and an acceptance of obligation. Because these are the only things that will allow us to go further, do better, act with confidence on the challenging path of entrepreneurship.

What comforted me is learning that the overwhelming majority of our CGS sales colleagues upheld their principles in the face of temptation. To these colleagues, I salute you! More importantly, we thank the colleagues who have the courage to stand firm and fight against what is wrong. From their actions we witnessed the courage and power of upholding integrity and principles. In them we see Alibaba’s future and hope! And we need more Aliren like them! Those who do the extraordinary must assume extraordinary responsibilities!

The resignations of David and Elvis are tremendous losses to the company. For me this is extremely sad and hurtful. But I think their willingness as Aliren to step up and accept responsibility is most admirable. On behalf of the company, I want to express my sincere gratitude to the both of them for their unrelenting dedication and contribution to the company.

Fellow Aliren, the B2B board of directors has appointed Jonathan Lu as B2B CEO; the Group has appointed Lucy Peng as Chief People Officer of Alibaba Group. I hope everyone will fully support the work that lies ahead and believe we can make a difference!

This is an era full of promises and an era that no one wants to miss out on. Only through holding onto our ideals and our principles will we be able to become the pride of this era!

If not now? When?

If not me? Who?

Jack Ma
2.21.2011

Here we go with the Yahoo third-quarter earnings call starring CEO Carol Bartz, who has some–in the immortal words of Ricky Ricardo–‘splaining to do.

Yahoo turned in a much-needed solid quarterly earnings report, with slightly better-than-expected earnings, although still weak revenue.

Of course, there are all the takeover rumors, the exec departures and fights with partners such as China’s Alibaba Group.

2 pm PT: First on is the lovely investor relations lady, Marta, saying stuff I never pay attention to.

But Bartz came on right away and she sounded subdued and very much on script.

Good idea!

She began by explaining what she has been up to and–once again with feeling–exactly what Yahoo is.

“The key words are innovative, content, media and communications,” she stressed.

Technology is all well and good, but Yahoo is the “largest digital media, content and communications company.”

She also briefly addressed the departure of execs: “Some people leave, some get promoted and some good people arrive.”

Well, you could put such turmoil that matter-of-factly, I suppose.

Bartz then asked the question: “What have we done to re-engineer Yahoo?”

She reeled off a list she has repeated many times before, the point of which was to let us all know she has been mighty busy cleaning up the big mess she had to deal with on arrival.

So lay off, all you naysayers! It’s kind of like what President Barack Obama is saying these days, as he looks forward to huge political losses in the upcoming election.

It’s apparently a disciplined approach. “First you walk, then you run.” Then, she added, you FLY!

Don’t look down, Carol!

She promised to talk about what’s on all our minds–as in the takeover swirl related to AOL, News Corp. and a passel of private equity moneybags circling Yahoo.

2:15 pm: Time for the numbers from CFO Tim Morse, which you can see here.

He was much jauntier than usual. I wonder if that was in the script. Smile with your voice, Tim!

I mostly did not listen to this spiel, as it was a recount of the numbers I already read. But there are some nuggets.

Apparently, for example, revenue for owned and operated search is down because users are clicking on the really good new results from the Microsoft algorithmic search transition, so they are not clicking on paid search as much.

Hmmm….I wonder what happens when they get great.

Then it was on to earnings and stock repurchases, designed to goose the shares, which Yahoo considers undervalued.

So do investors.

Next, he moved on to the outlook, which was weak.

And Morse also noted the uncertainty that has to do with the search and online advertising alliance transition. “Caution is warranted,” said Morse.

“We’re pleased with our third-quarter results,” summarized Morse, seemingly ignoring the revenue issue.

2:31 pm: Bartz was then back on discussing the search alliance and the rocky relationship with China’s Alibaba Group. Rocky is my word and actually is also Alibaba’s.

At least all is well with Microsoft, Yahoo’s one-time nemesis.

It has been a big transition, of course, Bartz noted. Indeed.

Then Bartz went out of her way in praising Alibaba CEO Jack Ma, whom many sources said she has treated shabbily in the past.

It is “a good productive business relationship,” said Bartz.

Other than that, she politely suggested we all butt out of what Yahoo is going to do with the asset, a 29 percent stake of Alibaba.com worth $3.1 billion, according to the company.

Finally, Bartz said Yahoo had “potential” and promised a payoff to shareholders in the months ahead.

That would be nice.

2:38 pm: Time for Q&A.

The first question was about the search revenue growth. Soon!

The next was about search revenue and display advertising and a left-field query on engagement on smartphones.

Same answer, and also people will use Yahoo on any screen.

Next question was on display growth. Same answer.

Will any of these analysts ask the good questions about takeover rumors and other thorny management issues?

Wait, finally there came a sheepish request for clarification about the rumors–well, they are real, so realmors–about takeover plans by private equity folks, along with AOL’s Tim Armstrong.

“As tempting as it is to tell you what I really think, you know I can’t comment,” said Bartz, who really sounded like she wanted to comment.

Give in, Carol! In the words of Oscar Wilde, which is BoomTown’s operating motto: “I can resist everything except temptation.”

Nope, she will not utter a word about “hypothetical this and hypothetical that.”

Instead, the boilerplate: “We like our strategy, we like our progress, and that’s what we’re focused on.”

Next, more questions about revenue weakness. Bartz blamed it all on the drag of search revenue. “The main drag on our growth has been search revenue,” she noted.

She said it will get better once the whole transition kicks in.

Bartz did sound convincing, especially when she noted it was part of a six-year trend in decline in search. By the end of 2011, she promised, it will all be different.

But, in the immortal words of Clint Eastwood in “Dirty Harry”: “You’ve got to ask yourself one question: Do I feel lucky? Well, do ya, punk?”

Now, a question about a “bloated” work force. Yahoo employee count is up seven percent, although costs are down 12 percent.

Morse: “No, we’re not bloated.”

Bartz took a question about competition in the display market, as in Yahoo is going to get smacked by rivals, such as Google.

“There is always competition and competition only makes us better,” said Bartz. “We’re running very fast and not going to give up this leadership in display very easily.”

Given Google’s inroads here, she better run faster than the Road Runner.

The last question was about monetization of mobile.

Lots of pretty, empty words from Bartz, especially since Yahoo does not have a really competitive offering compared to Google and Apple.

It should be added that both Google and Apple smoked it in terms of revenue growth in their quarterly earnings this week.

Also, I hear that Facebook social networking site is growing pretty quickly.

And it ended, with nary a decent question from Wall Street analysts about the clear turmoil at the long-troubled Silicon Valley icon and answers about what Bartz is going to do to address it.

The media is in listen-only mode for these calls, which is a shame, since I for one would love to listen to what Bartz has to say.

I know you’re busy and all, Carol, but perhaps you can talk over dinner soon?

Yahoo reported its third-quarter earnings earlier today, a pretty good performance in which it soundly beat Wall Street expectations with a stronger net income than expected.

While revenue at the Silicon Valley Internet giant was down, also as expected–both owned-and-operated search and display advertising saw big declines, 19 percent and eight percent–cost-cutting by CEO Carol Bartz and the sale of the company’s stake in China’s Alibaba.com seem to have more than made up for it.

You can read BoomTown’s liveblog of the conference call by CFO Tim Morse here, but please also enjoy Yahoo’s (YHOO) financial highlights presentation, as well as its condensed financial documents, full of more numbers than you will ever want to crunch.

And, yes, Tim Morse, because I know how little attention the work of accountants get, I have actually read them all!

Here they are:

YQ3_Q309EarningsPresentationFINAL –

YHOO Condensed Financial Documents –

Yahoo bested Wall Street expectations today, announcing stronger net income for its third quarter, despite an also expected decline in revenue.

The Sunnyvale, Calif.-based Yahoo reported net income of 13 cents a share, or $186.1 million, on revenues of $1.13 billion for the quarter ended Sept. 30, 2009, which was a decline from $1.33 billion the same period a year ago.

Wall Street estimated that Yahoo (YHOO) would earn just under seven cents a share on revenues of $1.12 billion.

The improvement includes a $98 million gain on a sale of the company’s stake in Alibaba.com in China, which is nonrecurring, as well as other cost-cutting by CEO Carol Bartz.

In addition, Yahoo’s expectations for the fourth quarter are more positive than those of investors.

Also in the earnings numbers: Yahoo had $4.5 billion in cash and marketable securities, as well as 13,200 employees.

But there was something to worry about: Search advertising revenue was off 19 percent and display was off eight percent at “Owned and Operated” sites on Yahoo.

Google (GOOG), in contrast, reported a seven percent rise in its recent third-quarter results last week, and its execs projected a mood of smooth sailing ahead and no more econalypse.

Nonetheless, overall, it was a solid performance from the Silicon Valley icon, especially compared to some of its recent and decidedly rockier earnings reports.

But, while investors can now breathe a little sigh of relief that the bleeding seems to have stopped, they will now likely focus on how much growth the Yahoo can have in the future.

That’s the next story for certain, starting with Yahoo’s analyst meeting next Wednesday, although today’s Yahoo management buzzword was “stablized.”

“With revenue coming in above our guidance and flat sequentially, we had a solid third quarter that signals our major businesses have stabilized,” said Bartz in a press release. “With new products like Yahoo! homepage, our brand revitalization campaign and expansion in the Middle East through Maktoob.com, our execution is improving and we’re focused on what we do best–being the center of people’s online lives.”

Added CFO Tim Morse: “In the third quarter we saw strength in key areas of our business. Our efforts to reposition Yahoo! are still in the early stages, but we’re confident that our investments in the business will enable us to capitalize on growth opportunities as the economy recovers.”

You can read all about it in Yahoo’s press release here, which includes performance tables of third-quarter results, or below without tables.

More to come at the conference call at 2 pm, which BoomTown will blog live!

Here is the Yahoo press release on the quarter:

YAHOO! REPORTS THIRD QUARTER 2009 RESULTS

Company Exceeds Revenue Outlook Maintains Strong Balance Sheet with over $4.5 Billion in Cash and Marketable Debt Securities

SUNNYVALE, Calif., October 20, 2009–Yahoo! Inc. (NASDAQ: YHOO) today reported revenues of $1,575 million for the quarter ended September 30, 2009, a decrease of 12 percent from the third quarter of 2008 and slightly above the second quarter of 2009. Excluding the impact of currency rate fluctuations and divested business lines, revenues for the third quarter of 2009 would have declined 7 percent compared to the third quarter of 2008.

Net income per diluted share for the third quarter of 2009 was $0.13, compared to $0.04 for the third quarter of 2008. Non-GAAP net income per diluted share for the third quarter of 2009 and 2008 was $0.15.

“With revenue coming in above our guidance and flat sequentially, we had a solid third quarter that signals our major businesses have stabilized,” said Yahoo! chief executive officer Carol Bartz. “With new products like Yahoo! homepage, our brand revitalization campaign and expansion in the Middle East through Maktoob.com, our execution is improving and we’re focused on what we do best–being the center of people’s online lives.”

:In the third quarter we saw strength in key areas of our business,” said Yahoo! chief financial officer Tim Morse. “Our efforts to reposition Yahoo! are still in the early stages, but we’re confident that our investments in the business will enable us to capitalize on growth opportunities as the economy recovers.

Revenues

* Marketing services revenues declined 12 percent and fees revenues declined 11 percent, compared to the third quarter of 2008.

* Marketing services revenues were flat and fees revenues increased 2 percent, compared to the second quarter of 2009.

* Marketing services revenues from Owned and Operated sites were $851 million for the third quarter of 2009, a 15 percent decrease compared to $1,002 million for the same period of 2008. The decrease was primarily driven by a 19 percent decline in search advertising revenue and an 8 percent decline in display advertising revenue.

* Marketing services revenues from Affiliate sites were $526 million for the third quarter of 2009, a 6 percent decrease compared to $561 million for the same period of 2008.

Cash Flow and Cash Balance

* Cash flow from operating activities for the third quarter of 2009 was $355 million, a 2 percent increase compared to $347 million for the same period of 2008.

* Free cash flow for the third quarter of 2009 was $258 million, a 20 percent increase compared to $215 million for the same period of 2008.

* Cash, cash equivalents, and investments in marketable debt securities were $4,503 million at September 30, 2009 compared to $3,522 million at December 31, 2008, an increase of $981 million.

Business Outlook

GAAP revenue for the fourth quarter of 2009 is expected to be in the range of $1,600 million to $1,700 million. Non-GAAP operating income before depreciation, amortization, and stock-based compensation expense for the fourth quarter of 2009 is expected to be in the range of $400 million to $450 million. Income from operations for the fourth quarter of 2009 is expected to be in the range of $135 million to $155 million.

And the company’s proposed advertising partnership with Google (GOOG) has been delayed due to the Justice Department’s ongoing related antitrust review.

And its lucrative stakes in two Asian Internet firms–Alibaba.com and Gmarket–have lost 22 percent of their value, or $2.1 billion, since Yahoo assessed them in July.

And its quarterly profit and sales are expected to fall short of consensus estimates because of what CEO Jerry Yang likes to call headwinds.

Now that Yahoo is trading at $12.63 in an economy that’s falling Homer Simpson-style down the long rocky slope of economic collapse, some of the company’s institutional investors are hoping to convince it to sell itself to Microsoft (MSFT). Mithras Capital Partners, which holds about 1.9 million shares of Yahoo, has proposed selling the company to Microsoft for $22 a share, a 74 percent premium on Yahoo’s current stock price, but something of a discount over the $31-per-share Microsoft once offered and the $40-a-share for which Yahoo had hoped.

In a letter to the two companies, Mithras suggested Microsoft acquire the Internet underachiever, sell off its Asian assets and nonsearch businesses and extract $3 billion worth of cost savings and $2.8 billion of tax benefits. That would essentially mean that the Software giant would pay $10.3 billion for Yahoo’s search business, $2 billion less than it planned to spend back in July. “It is imperative for Microsoft to act now, while the Yahoo-Google deal is mired in regulatory concerns, and before Yahoo strikes a deal with AOL,” said Mark Nelson, a partner at Mithras. “It is imperative for the Yahoo board to embrace this proposal as the best outcome for long-suffering Yahoo shareholders.”

I suppose. But if Yahoo’s board felt $31-a-share “massively undervalued” the company, what will they think about $22?

But I seem to be in violent agreement with Sanford Bernstein analyst Jeff Lindsay of late–at least with a recent report he just did calling for Yahoo to abandon its slower-moving strategies and get much, much bolder much, much quicker.

Suggestions by Lindsay included outsourcing its search business, making deep cuts in staff and also doubling down on its bets in its ad network businesses like Right Media.

(Frankly, I’d just like to see the company immediately-if-not-sooner roll out innovative email features like CEO and Co-Founder Jerry Yang showed at the Consumer Electronics Show last week.)

If you recall, Lindsay penned a previous report last October on the worth of Yahoo by parsing out its various assets. It was instructive in its focus on the value of Yahoo’s somewhat liquid holdings like investments compared to its core business.

The message at the time: Yahoo had some valuable assets–such as its stake in China’s Alibaba.com–and its stock did not reflect these gems. It even suggested the company be split into parts to unlock value.

But his most recent piece is less sanguine–a kind of flip side to the first, noting that the operations side of the business was not up to snuff, causing the valuation of Yahoo to fall. Bernstein blames Yahoo’s too-careful management, as well as its declining share of the search market.

Whatever you think about Yahoo, its still lackluster stock price–it hovers in the low $20-range–make reports like Lindsay’s interesting reading. See also this Motley Fool report yesterday, naming Yahoo the “Worst Stock for 2008.”

Nonetheless, all this bearishness could foretell some bullishness on Yahoo, which appears to simply refuse to move faster than it wants to.

Consider a largely positive piece on Yahoo’s fine-tuning of its business in the New York Times yesterday, which chronicled Yang’s turtle-versus-hare approach to the company’s future.

The article quoted Yang’s I’m-still-here intro to the CES speech (pictured here in this AP shot by Paul Sakuma), which kind of says all you need to know: “I’m guessing that a lot of you are here today to see what the new look and new face of Yahoo is all about…well, I’m sorry to disappoint you. It’s still the same old face. I’ve been around since the beginning.”

And, I have no doubt, until the bitter, sweet or even bittersweet end.

But, there seems to be some silver lining with the IPO of Alibaba.com. Shares of Yahoo did decline yesterday due to intense focus and perhaps some profit-taking on the business-to-business e-commerce portal, in which Yahoo holds a stake.

In its offering yesterday, Alibaba.com raised $1.5 billion, although investors expected substantially more shares to be sold. Yahoo agreed to buy $100 million of the Alibaba.com shares, and it also owns a 39% share in its parent, the Alibaba Group.

The IPO has had a dulcet impact on Yahoo shares in recent weeks, lifting its stock price in anticipation of a killing when Alibaba.com debuts on the Hong Kong stock exchange Nov. 6.

Here’s a good Wall Street Journal piece about Alibaba.com and a chart to peruse, if you feel like helping Jerry Yang keep Yahoo stock smoking (well, a little wildfire, at least!).