ANALYSIS: Not Much to Shout About at Yahoo!


ADOTAS – Marissa Mayer’s attempt to turn Yahoo! around seems to have become stuck in neutral.

The company recently reported that its revenues fell by 1.7 percent in the fourth quarter, minus commissions paid out to partners for Web traffic. This is the fourth straight quarter with no growth.

By the numbers

Yahoo reported fourth-quarter revenue of $1.27 billion, down six percent from $1.35 billion in the quarter 12 months ago. This figure was in line with Wall Street’s expectations. Net income for the quarter was $352 million, or 33 cents per share, up from $274 million, or 23 cents per share. The results were lifted by a $49 million gain from the sale of patents.

The company’s display ad revenue, which makes up about 41 percent of the total, fell by 5.6 percent, even during a time when the overall market is growing quickly. The disappointing sales figures were released about a week after Mayer fired her chief operating officer, Henrique de Castro, who was one of her first hires after taking over the helm. In the 18 months she has been in charge, Mayer has yet to show any meaningful progress in a market that continues to be dominated by Google and Facebook.

Focus on ad sales

Improving ad sales became a personal mission for Mayer after she fired de Castro, whom she wooed away from Google with a pay package valued at $58 million. She told analysts that he turned out to be “not a good fit” in a recent conference call and explained that she does not intend to fill his position. Instead, she intends to focus on spending more of her time with advertisers. She has very little experience with advertisers and has struggled to entice them to spend money on Yahoo! sites since taking over at the company’s helm in 2012.

While Mayer also worked for Google, and appears to understand the problem(s) with Yahoo!, it is not clear whether she can reverse the company’s decline or not. She has stated that the company will continue its efforts around “people, products and traffic” while concentrating its efforts on revenue. Using a measure of profits that focuses on income before taxes, stock options and other costs, the company’s profits were down.


Yahoo’s 24 percent stake in Alibaba, a Chinese e-commerce company, has been particularly valuable, since the Alibaba is still growing rapidly as it prepares for an initial public offering of stock. Figures released by Yahoo! indicated that Alibaba’s revenue increased by 51 percent in the third quarter. There is a one-quarter lag when Alibaba closes its quarter and Yahoo collects its share of Alibaba’s earnings. This company’s earnings are the main reason why Yahoo’s stock has more than doubled since Mayer took over as chief executive.

Growth takes time

Mayer has said that reaching a desirable level of growth at Yahoo! will take several years. To speed the recovery along, she has boosted investments in engineering, eliminated underperforming services and focused on attracting users with new products. She also spent a relatively huge amount ($1.1 billion) on Tumblr, a blogging site that has little revenue. Mayer stated that 2013 was the year in which Yahoo! built a foundation for growth and that she was pleased with the progress.

What’s next?

Mayer says she hopes to improve the Yahoo’s sales this year with a number of new media offerings. The company, however, does not expect much sales growth this quarter. First quarter sales are expected to be between $1.06 billion and $1.1 billion, excluding revenue passed to partner sites. One year ago, that number was $1.07 billion, so no real growth there.

If you are looking to see what the financial pros are saying, there really isn’t any good news for Yahoo! there. According to Colin Gillis, an analyst at GBC Partners in New York, the outlook for Yahoo! is “dismal.” He rated the stock a “hold” recently, and said there is going to be more pressure to perform as the year progresses. Yahoo! shares were down 8.7 percent to $34.89, representing the company’s biggest decline since July of 2009.

It’s hard to say what’s next for Yahoo!, or for its leader, Mayer. It will be interesting to see if the company continues to slide or if the downturn over this recent period will end up being attributed to “growing pains” after all.


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