Yahoo Financials – Advertising declines, new deal with Alibaba

A few days ago we posed the question “What is next for Yahoo?“.

After analyzing the two years under Marissa Mayer, how the share price has developed, acquisitions and other factors we concluded with a number of main aspects to focus on:

  • Short-term Yahoo is going to rely on the growth and IPO success of Alibaba.
  • Long-term they have to grown their user base, especially in the mobile segment and turn that into advertising revenue.
  • Acquisition spree needs to slow down (Yahoo has bought 39 companies under Marissa Mayer). The focus needs to be on integrating these and deliver contributions to the bottom line

We were looking for the July 15th earnings of the company to give us some insight where the company is heading. The company announced a number of things directly related to what we focused on in our original article:

Yahoo owns 24% of Alibaba which is expected to have the largest technology IPO in history, with analysts valuing the company in the region of $200 billion. There was an agreement in place which forced Yahoo to sell 208 million shares but the company announced on Tuesday that the number of shares being sold in the IPO has decreased to 140 million.
What does this mean for Yahoo? They still generate a substantial amount of cash when Alibaba goes public, at the same time they will hold a larger percentage of the company than originally agreed which means investors and analysts will calculate a lot of the Alibaba success into the Yahoo share price and Mayer gets more time to continue her quest of turning the company around.

And looking at the recent quarter that is definitely something she needs:

The number of mobile users has grown under the new CEO but the company continues to struggle when it comes to generating advertising revenue.

Here are the financial highlights of the most recent quarter:

 

  • Revenue: $1.08 billion (down from $1.14 billion during the same period last year)
  • Profit: $270 million (down from $331 million last year)
  • Display ad revenue decreased by 8%
  • YOY advertising sales increased by 24% but the price per ad decreased by the same percentage
  • Mobile, social and video ads have grown over 90% in a year but only make up a fraction of the overall revenue generated

Yahoo also decreased their forecast for the third quarter giving a range of $1.06 – 1.1 billion.

In our original article on the future of Yahoo we noted that the acquisitions have to start paying off and contribute to revenue and profits. The company has had several quarters to integrate their biggest acquisition Tumblr but so far the largest blogging network in the world has only given Yahoo more visitors but no visible revenue.

Marissa Mayer mentioned during the call that the transformation of the company will take several years. Holding a larger stake in Alibaba could buy her some time if the Chinese company performs strong after the IPO but regardless of that investors are going to focus more on more on the other aspects of the Yahoo business if the trend continues as it has.

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