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Can CEO Marissa Mayer Ever Get Yahoo Really Growing Again?

This article is more than 9 years old.

Yahoo finally showed a spark of revenue growth for the first time in more than a year in its first quarter. But just barely. And that raises questions anew about whether CEO Marissa Mayer's furious activity since she joined in 2012, from a flurry of acquisitions to layoffs to revamped services, will ever pay off.

Not that the results were disappointing, at least to investors. Indeed, they came in just slightly above expectations, with earnings before certain costs of 38 cents a share on revenues after subtracting commissions paid to partners for Web traffic of $1.074 billion. Analysts tracked by  Thomson Reuters  had expected a net profit of 37 cents a share on $1.07 billion in revenues.

Investors liked what they saw. After rising 2% today, to $34.21, before earnings were announced after the market close, shares shot up 8% in extended trading. One wonders, however, if that gain came as much from zooming profits at Alibaba, in which Yahoo has a 24% stake, as from Yahoo's own results.

Mayer put as much of a sheen on the earnings as she could. “I am really pleased by our first quarter performance, marking our best Q1 revenue ex-TAC since 2010," she said in a statement that pointed to growth in search revenues. Display ad revenues were flat on a GAAP basis but up 2% "ex-TAC," or minus those traffic acquisition costs. While price per display ad fell about 5%, Yahoo sold 7% more of them. "Q1 was an early and important sign of growth in our core business," she added.

But not much of one. The fact remains that investors' interest in Yahoo, which has been waning this year after hitting a high of $42 in January, comes mainly from the riches expected when China's Alibaba goes public before long. The money Yahoo has already gotten from selling some of its Alibaba shares has helped Mayer on an acquisition spree intended to spark growth in users and, she hopes, some buzz that Yahoo lost long ago.

The problem that eventually will matter to investors is simple: Despite all of Mayer's energetic efforts to restore Yahoo's growth, the signs of improvement remain hazy. Yahoo's share of online ad revenues worldwide fell to 2.9% last year, according to eMarketer, down from 3.40% in 2012, and its share will continue to fall this year by eMarketer's estimates.

Its rivals in advertising, chiefly Google and Facebook, continue to grow fast despite their much larger base of revenues because they've proved to marketers that their advertising works. To put it bluntly, Mayer and her new staff have not yet managed to do the same.

I'll provide some highlights from the conference webcast after it begins at 2 p.m. Pacific. You can also check out the earnings slides.

On the call, Mayer again emphasized what little revenue growth there was, especially a 9% uptick in search revenues but also what she termed a "modest" 2% ex-TAC growth in display. She showed a chart of five stages of growth, putting Yahoo between "stable" and "modest" growth. "Market" growth and strong growth will take years, she said in a rerun (justified as it may be after years of decline and neglect) of earlier promises.

Mobile saw a 15% jump in quarter-over-quarter growth in users, she said. From last year, its 430 daily mobile users are up 30%.

Q1 was the ninth consecutive growth in ex-TAC search revenues, she said, though of course Google continues to dominate.

Communications is another key Yahoo focus. She said Mail still needs improvement, a fact I will second (and third).

Third area of focus: content. Mayer has invested in new editorial talent and new digital magazines. The home page has been revamped as well, with Yahoo offering home-page takeover ads that she said advertisers like. Sports continues to be a rare area of strength for Yahoo, with the Winter Olympics, March Madness, and fantasy sports leading the way.

Yahoo is experimenting with new ad formats that are showing promise, Mayer added. In the quarter, Yahoo introduced a one-stop shop for buying search and so-called native advertising called Gemini, and "motion ads" for brand storytelling. More is coming in ad tech, she promised.

Not least, Mayer said hiring is key--including 300 new engineers in the quarter.

At this point in the call, as Chief Financial Officer Ken Goldman went over the numbers, shares gains after-hours moderated to 6%. The one set of numbers that matters: guidance for the next quarter and 2014. The numbers: GAAP revenue for Q2 of $1.12 billion to $1.16 billion and ex-TAC revenue of $1.06 billion. Non-GAAP operating profit forecast range is $130 million to $170 million.

Mayer added that one of the big successes in advertising is "stream ads," so-called native ads that appear amidst stories on the home page. She also flicked at Tumblr, its $1.1 billion acquisition, which she said is especially successful in getting people to access the service on mobile, and on which Yahoo has recently introduced ads.

Mayer didn't leave much room for the main event of the webcast, the questions from analysts--only 20 minutes left unless they go over the usual hour. A few of the key questions raised:

Q: Is there room for Yahoo to challenge Hulu and everyone else in the market for ad-supported, professionally produced video content? Mayer, who is rumored to have greenlighted several multimillion-dollar Web series, didn't provide a clear answer.

Q: How will the end of the search revenue guarantee from Microsoft in the first quarter hurt revenues? Goldman and Mayer wouldn't say. But Mayer said she sees a huge opportunity in mobile search that hasn't been addressed or even defined yet. That's one of the impetuses behind last year's acquisition of mobile home screen app Aviate.

Q: What are the AdAge 100 top advertisers saying about Yahoo's ad offerings? (Better to ask them, I would think.) Mayer said Yahoo is particularly courting consumer packaged goods companies. Essentially, though, she said she's counting on display ads growing "precipitously" as advertisers move budgets online, in mobile and video, to follow the people there. (But that's still a relatively slow process, and one where others such as Google and Facebook are far ahead.) International growth, which Yahoo hasn't focused on in a big way on the ad side yet, also will be a big focus now, Goldman added. But Mayer later said mobile will be the overriding focus.

Shares settled up about 6.5% by the end of the call at 3:03 p.m. Pacific.