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Yahoo Stumbles Along

Posted on Thursday, Apr 23rd 2015

Yahoo’s (Nasdaq: YHOO) Marissa Mayer just can’t seem to figure out an operational turnaround. Earlier this week, Yahoo reported their first quarter results for the year and they continued to disappoint the market. Some may argue that since Mayer took over the reins, Yahoo’s stock has nearly tripled. But the growth in the stock is really attributed to their high performing investments in Asia. Yahoo owns 24% stake in Alibaba and 35% stake in Yahoo Japan.

Yahoo Financials

Yahoo’s first quarter revenues fell 4% over the year to $1.04 billion, falling short of the Street’s target of $1.06 billion. EPS of $0.15 also missed the market’s forecast of $0.18.

By segment, display revenues grew a modest 2% over the year to $531.67 million. This was the first time that display advertising increased since 2011. However, display revenues after TAC fell 7% over the year to $381.3 million despite the 29% growth in the number of ads sold. The decline was attributed to the 17% decline in the price-per-ad.

Search revenues fell 3% over the year to $431.7 million and other revenues declined 2% to $233.9 million. During the quarter, the number of paid clicks increased 21% and price-per-click grew 3% over the year.

Mobile continued to grow and contributed 21% of the quarter’s traffic compared with 14% reported a year ago. Gross mobile revenues grew to $391 million for the year compared with $231 million last year.

Yahoo’s biggest worry has been that the growth in the newer ads has not compensated for the decrease in the traditional and pricier ad formats. Yahoo classifies the new ad formats as MAVENS ads–mobile, video, social, and native. During the quarter, revenues from these formats increased 58% to $363 million while revenues from non-MAVENS ads i.e. display and search ads fell 7% to $744 million.

For the current quarter, Yahoo projected revenues of $1.01-$1.05 billion, falling short of the Street’s forecast of $1.04 billion.

Yahoo’s Search Expansion

During the quarter, Yahoo saw search volumes reaching a five-year high. The growth was attributed to their tie-up with Mozilla that made Yahoo the default search engine for the browser. The partnership is already proving to be profitable for Yahoo.

Recently, they also announced an amended search partnership with Microsoft that is aimed at improving the search experience while creating value for advertisers and establishing stability for partners. As part of the new agreement, Yahoo will add flexibility to enhance the search experience on any platform. They will continue to serve Bing ads and search results for at least 51% of its desktop search traffic. Additionally, since the first five years of their agreement with Microsoft are over, Yahoo will now begin to earn 90% of ad sales compared with 88% paid so far.

Yahoo’s Content Growth

They continued to build on their content development and expanded their digital magazines. During the quarter, they launched three new digital magazines –Yahoo Politics, Yahoo TV, and Yahoo Autos. They also integrated the digital magazines with their mail offering by introducing interactive features on the Yahoo App that allows users to connect to these magazines.

Last quarter, Yahoo was chosen by Snapchat as a launch partner that will allow them to bring the day’s most important headlines from Yahoo News directly to Snapchat members as part of its Discover feature. They have also expanded their tie-up with Disney Group that will allow them to include Yahoo Your Day series on Good Morning America.

Yahoo’s Acquisitions

Yahoo continued to add to their portfolio and last quarter announced a $640 million acquisition of video ad platform BrightRoll. BrightRoll is among the leading providers of video ads using an instantaneous computerized matching process. Their platform allows marketers to deliver highly targeted ads based on the viewer’s age, geographic area, and other traits. eMarketer estimates that programmatic video ads will account for 40% of digital video ad spend by 2016, compared with 12% share last year. Yahoo is already integrating BrightRoll’s technology with their advertisement offerings to increase the video ad revenues.

As part of their mobile initiative, they acquired photo app maker Cooliris. The Cooliris app uses an interface similar to an old 3D wall that allows users to browse photos from multiple platforms including Facebook, Flickr, and Dropbox. Terms of the deal were not disclosed. Finally, they acquired Media Group One, a German advertising group, in an effort to expand their presence in the EMEA region. Media Group One handles ad sales for more than 800 publishers in Germany.

Yahoo’s investors have prompted Yahoo to evaluate the spin-off of their Japanese assets, which are estimated to be worth $9 billion. Yahoo has already announced a tax-free spinoff of its 15% stake in Alibaba. Yahoo is currently evaluating the option.

Meanwhile, their stock is trading at $44.49 with a market capitalization of $41.7 billion. It touched a year high of $52.62 in November last year.

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