Close but No Cigar for Mayer's Yahoo

By Carol Kopp  JAN 29, 2014 9:05 AM

Decline continues at slower pace. Wall Street is not impressed.

 


In its latest quarter, Yahoo Inc. (NASDAQ:YHOO) met expectations, more or less. That may be a good thing, but it's hardly a great one.

In her first 18 months at the top of the company, Marissa Mayer has managed to slow, but not halt, the decline in key numbers behind the one-time giant in Web search and content.

Here's where we mention that Mayer, on taking the job in mid-2012, said it would require several years to turn around Yahoo.

On Tuesday, after the company released its quarterly results, Wall Street traders signaled that time's up. The stock dropped 2.4% in after-hours trading, to $37.29.

Even the Alibaba numbers failed to thrill. The Chinese e-tailing powerhouse, in which Yahoo has a 24% stake, showed a 51% year-over-year increase in revenue, but analysts picked up signals that its margins were showing signs of shrinkage. The wannabe Wall Street darling is expected to go public sometime this year.

Still, Yahoo's results offer a peek inside this hot company's progress: Alibaba made $801 million in profit for the quarter, compared to a $246 million loss in the same period a year earlier. The loss was due mainly to a royalty payment to Yahoo.

As for Yahoo's core business, revenue from the all-important display advertising business declined 6%, to $553 million, a slightly better result than last quarter's 7% decline. Search revenue dropped 4%, to $464 million. Overall, quarterly revenue was $1.27 billion, roughly in line with expectations, but still 6% lower than the same quarter a year before.

Yahoo remains a profitable company. It reported a quarterly profit of $174 million, down 8% year-over-year.

The company's net income was $352 million, or $0.33 per share, up from $274 million, or $0.23 per share. Even that failed to impress, since a $49 million chunk of it came from sales of patents rather than operational income.

The company's outlook for the current quarter didn't help, either. Yahoo expects quarterly income of between $130 million and $170 million, well below analyst forecasts, on sales of $1.06 billion, a little lower than expectations of $1.08 billion.

On the conference call, Mayer said she sees "stable momentum with some modest acceleration in the second half of the year."

Company CFO Ken Goldman also said that revenue "is stabilizing."

Chief Operating Officer Henrique De Castro said absolutely nothing, as he was fired a couple of weeks ago. Finding ways to increase advertising revenue was a part of De Castro's job.

Inquiring minds were anxious to hear more about De Castro's abrupt departure, but there was no joy there. In response to a question, Mayer, who lured De Castro away from Google (NASDAQ:GOOG) for the job, said only that "Ultimately, Henrique was not a fit. It was a conclusion we tried very hard to avoid."

No doubt they did: De Castro was reportedly paid an estimated $109 million in stock and cash for his 15 months on the job, including salary, severance, bonus, and compensation for money he lost by leaving Google.

Mayer said that De Castro would not be replaced, and that she would personally take a greater role in advertising sales.

In a prepared statement, Mayer said she is encouraged by the company's progress in the quarter, and in the year as a whole. "We saw continued stability in the business, and our investments allowed us to bring beautiful products to our users and establish a strong foundation for revenue growth," the statement said.

Maybe so. But 2013 was the year that Yahoo lost its number-two spot in the global digital advertising sales rankings to Facebook (NASDAQ:FB), according to research firm eMarketer. Yahoo is now a distant third, with less than 3% to Facebook's 5.6%. Google remains far ahead of the pack, with almost 32% of global ad sales.

See also:

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No positions in stocks mentioned.

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