Yahoo profits down but ad revenue up in Q1

Wednesday 16 April 2014 11.41
Marissa Mayer has been working to turn the company around since taking over as CEO two years ago
Marissa Mayer has been working to turn the company around since taking over as CEO two years ago

Yahoo has again posted anemic quarterly revenue growth as the internet company's advertising business continues to lag its rivals, nearly two years into chief executive Marissa Mayer's comeback effort.

Ms Mayer has told analysts that new mobile and advertising initiatives were gaining momentum, positioning the company for a period of stable but modest growth. 

Revenue from its core display advertising business inched 2% higher in the first quarter, reversing several consecutive quarters of declines.

However the company forecast second-quarter revenue, excluding fees paid to partner websites, of $1.06-$1.1bn. 

That suggests revenue could decline by as much as 1% or rise by up to 2.7% from $1.07bn a year earlier, underscoring the challenges facing its business.

That did not faze Wall Street, which is focused primarily on Yahoo's 24% stake in Alibaba Group Holding, the Chinese e-commerce giant that is expected to go public later this year.

Yahoo's shares climbed 7% on strong results from Alibaba.

"It's really Alibaba driving things," said Macquarie Research analyst Ben Schachter. 

Yahoo's core business improved slightly in the first quarter, but "really the story here is Alibaba and the somewhat unexpected re-acceleration" of its revenue growth.

The Chinese company's revenue increased 66% to $3.06bn in the fourth quarter, according to slides that Yahoo posted on its investor relations website yesterday, faster than the 51% growth in Alibaba's third quarter.

Yahoo reports the Chinese company's financial results one quarter later than its own.

Ms Mayer is trying to revitalize Yahoo's business. 

The former Google executive revamped many of Yahoo's Web products but its ad sales business continues to struggle while rivals such as Google, Facebook and Twitter continue to post strong, double-digit revenue growth.

Revenue from display ads, which accounts for roughly 40% of Yahoo's overall sales, increased just 2% to $453 million, excluding partner fees. 

That meagre growth follows several consecutive quarters of decline in the display ad business.

Yahoo said it was making progress in developing new mobile technology, online video, social media and new ad formats. 

The company now counts 430 million monthly users of its mobile products, while the number of online video streams consumers watched increased 30% from the fourth quarter.

Finance chief Ken Goldman said that so-called "stream ads" that appear in-between scrolling news headlines on Yahoo's Web pages now account for about a fifth of the number of display ads that the company serves. 

He noted that stream ads were priced lower, weighing on the company's total average price per display ad, which declined 5%.

Goldman did not provide any update on how Yahoo might use the proceeds from the Alibaba IPO, during which Yahoo is required to sell 40% of its stake in the company.

Alibaba, valued at more than $140bn, is expected to go public later this year in the United States in the largest IPO since Facebook's debut in 2012.

Yahoo's revenue, excluding fees paid to partner websites, came to $1.087bn in the first quarter, up from $1.074bn in the year-ago period. 

Analysts polled by Thomson Reuters I/B/E/S had expected adjusted revenue of $1.077bn.

It had net income of $311.6m, or 29 cents a share, in the first quarter. It earned 38 cents a share excluding certain items.