Marissa Mayer's long-awaited turnaround at
Yahoo's first-quarter profit came in at 15 cents per share, well under analysts' forecast of 18 cents. Revenues excluding payments to website partners for traffic fell again, to $1.04 billion, a little under forecasts of $1.06 billion.
In a prepared statement, CEO Mayer cited "encouraging" revenue on a GAAP basis of 8%. Although display revenues rose only 2%, search was up 20% and mobile revenues jumped 61% from a year ago to $234 million.
"Yahoo is amidst a multi-year transformation to return an iconic company to greatness," Mayer said in the statement. "For the next phase of the transformation, we will focus on accelerating our GAAP revenue growth while managing our margins and costs."
The bottom line is that surging growth in newer kinds of ads, especially on mobile devices, isn't yet making up for a long decline in search and display ads. Last year Mayer declared an emphasis on so-called Mavens ads--mobile, video, social, and native--but they're still quite small in comparison with the established ad formats. However, Mavens revenues, reported separately for the first time, rose 58%, to $363 million, or 22% of ad revenues. Revenues from non-Mavens ads, or display and search ads, fell 7%, to $744 million. "Advertisers are clearly moving away from YHOO's traditional strengths in premium display," Macquarie Securities analyst Ben Schachter wrote in a note to clients. "In our view, YHOO is focusing on the right areas, but it is going to be an uphill battle".
Yahoo's shares, which had declined today a fraction of 1%, to $44.49, fell about 1.5% in trading shortly after the market close. Later, halfway through the earnings conference call, they were rising as much as 1.4%, possibly thanks to a promise by Mayer that she would find a way to extract value from Yahoo's $7 billion stake in
Yahoo's disappointing earnings follow an announcement April 16 that it had revamped its search advertising deal with
There were a couple of bright spots in the report. In search, the number of paid clicks rose 21% from a year ago thanks to the Firefox deal, while price per click was up 3%. In display, the number of ads sold rose 29%, though price per ad fell 17%. Both of those are likely due to the growth of lower-cost native and mobile ads.
Still, the central question remains for Mayer: Can she get Yahoo growing again? Despite some two dozen acquisitions, including large ones such as social site Tumblr and video ad firm BrightRoll, Yahoo's revenues remain in the doldrums while Google, Facebook, Twitter, and others are seeing huge growth. "None of the acquisitions has changed the core business," says former Yahoo executive Bill Wise, now CEO of the advertising services firm Mediaocean.
The question is all the more pressing now that Yahoo is in the process of spinning off its stake in the high-flying Chinese Internet company Alibaba. Even now, since the spinoff won't happen until later this year, much of Yahoo's market value is attributed by most analysts to that stake and the one in Yahoo Japan, which Pivotal Research analyst Brian Wieser thinks could be worth as much as $10 billion. Yahoo also has seen high-level executive departures, most recently Mike Kerns, senior vice president of its home page and other sites, and Mayer has been doing a series of small layoffs.
The company's earnings webcast can be viewed here, but here are the highlights along with some tidbits from the Q&A with analysts:
Mayer pointed out that the 2% GAAP increase in display revenues was the first first-quarter increase since 2011. But on a net basis, they're still declining.
She also noted a "sharpening of priorities on how we align" the workforce, which is an especially opaque way to describe a reduction of 1,100 employees in the first quarter compared with a year ago and 3,000 in the last two years. More than half the full-time employees are new since she arrived, she notes. In other words, people who joined through acquisition are replacing many of those getting laid off.
In Q1, she added, Yahoo received nearly 43,000 job applications, so those layoffs apparently aren't discouraging people who want to work there.
She highlighted three key strategic areas: search, communications, and digital content. In search, she talked up the Firefox deal and those "healthy" search metrics mentioned earlier, as well as the new Microsoft search deal.
In communications, Yahoo Mail "accelerated its velocity," which apparently doesn't refer to how long it sometimes takes to load.
In digital content, there are new TV, politics, and auto channels and magazines on the likes of travel and beauty. Video also is taking off, with streams rising 150% from the previous quarter in the U.S. "We are gaining traction in video and we plan to do even more in the course of the year," she said.
Mayer also zeroed in on sports, including the 30 billion minutes a year that fans spend on fantasy sports. Daily fantasy games will be a big focus this year and they will launch this summer.
On the ad side, Mayer said Yahoo behavioral and demographic data is now integrated into BrightRoll, which should make advertisers, especially well-heeled brand advertisers, more interested. As for current results, Yahoo mobile native ads totaled $250 million last year, she noted, and already they've reached $110 million in the first quarter.
Mayer also said its Mavens strategy is starting to work--a good thing, since she cited "accelerating" decline in the older desktop search and display ads. Mavens ads will be key to offsetting that decline, she said, but didn't provide a timeline.
On another note, Mayer mentioned that the company intends to find a way to unlock value from its $7 billion stake in Yahoo Japan. But given the complexity of doing that, she didn't provide details or a timeline.
Mayer also signaled an intention to extract money from its patents. She emphasized that Yahoo has done so quietly so far, without lawsuits, and implied that she hopes to accelerate those efforts.
In the Q&A with analysts, Mayer and Chief Financial Officer Ken Goldman shed more light on the results.
For one, Mayer said Yahoo is especially interesting in pursuing mobile search. Anticipating investors' concerns about the cost of doing that, Mayer said the kind of search Yahoo wants to do may require less investment than traditional search like Google's. She cited the examples of Microsoft's Cortana, Apple's Siri, and Google Now that provide more ready answers vs. lists of links. Those don't take quite as much investment, she implied.
Mayer took a whack at answering a question about what Yahoo will be in five years. Her answer, not surprisingly, was to describe her current vision. "Our strategy is to be the indispensable guide to information," she replied, and also to connect people. However, that sounds ominously like the classic portal that nobody thinks Yahoo can revive.
Interestingly, Mayer said premium ads are starting to go "programmatic," or automated. Sometimes this kind of automated advertising means a race to the bottom on pricing, but it also means less of a need for pricey direct sales of ads, so Mayer's mention may indicate the possibility of a profitable place in the middle for big display ad campaigns on Yahoo's home page and other high-traffic sites.
