By Douglas MacMillan
Nearly three years into Marissa Mayer's attempt to turn around
Yahoo Inc., the business is still shrinking.
On Tuesday, Yahoo reported its revenue from display
advertisements and search ads both fell for the first time in
years. Display-ad revenue, a continuing sore point for the company,
dropped 7% to $381 million in the first quarter, excluding
commissions paid to partners. Search-ad revenue, which had grown
every quarter under Ms. Mayer, declined 3% to $432 million,
excluding the traffic costs.
The poor results cast doubt on Ms. Mayer's ability to grow the
aging Internet portal she took over in July 2012. Yahoo's
investments in emerging areas like mobile and video advertising
have failed to create a growth engine large enough to offset the
company's declining business of display ads shown on desktop
computers. The decline in search revenue only adds to the concerns,
especially at a time when Yahoo has signaled it would bolster its
search technology.
Amid the lackluster performance, Ms. Mayer is trying to shift
investors' focus to the emerging areas by grouping them into one
category on the earnings report, called "Mavens"--an acronym for
mobile, video, native and social advertising. Mavens revenue makes
up about one-third of the company's total, growing 58% to $363
million in the first quarter. All other revenue declined 7% to $744
million from a year earlier.
"Our Mavens strategy is core to our growth because it
counteracts declines in our legacy business," Ms. Mayer said on the
earnings conference call with analysts.
Now that Ms. Mayer has drawn attention to these emerging
businesses, there is pressure on her to show they can grow fast
enough to offset declines in desktop ads. The CEO set a timeline on
that goal earlier this year, when she predicted in a memo to
employees that "2015 is the year that we return our display revenue
to growth."
Investors are putting more scrutiny on Yahoo's core business as
the company prepares to spin off its shares of Chinese e-commerce
giant Alibaba Holding Group Ltd. in a transaction scheduled for
later this year. On the earnings call, Ms. Mayer said it has hired
advisers to explore a plan for unlocking value from its shares in
Yahoo Japan, an asset valued at billions of dollars.
Under pressure from activist investor Starboard Value LP to
reduce costs, Yahoo cut 1,100 employees last quarter, mostly from
offices outside the U.S.
Yahoo is expected to see its share of the U.S. display-ad
revenue market slip to 4.6% of the total this year, down from 5.5%
in 2014, according to eMarketer Inc. The online ad researcher
predicts Twitter Inc. will surpass Yahoo this year to become the
third-largest seller of U.S. display ads, trailing Google Inc. and
Facebook Inc.
Search has become more of a priority for Ms. Mayer, who
previously helped build Google's search engine. The CEO has
invested in building new search technologies and negotiated to
control up to 49% of searches done on desktops under the terms of
Yahoo's partnership with Microsoft Corp., which was amended this
month.
On the call with analysts, Ms. Mayer said that rather than crawl
the entire Web, she hopes to build new search tools that can
compete with Apple Inc.'s Siri service and Google Now, more
"action-oriented" search products.
Yahoo didn't detail the quarterly financial performance for
Tumblr, the blogging service it purchased for nearly $1 billion in
2013, but said the unit is still on track to generate $100 million
this year.
The company's first-quarter profit and revenue numbers both
missed analysts' estimates. Profit fell to $21.2 million, or two
cents a share, down from $311.6 million, or 29 cents a share.
Excluding certain items, the company's per-share earnings fell to
15 cents a share from 38 cents a share.
Revenue, minus commissions paid to search partners, fell to
$1.04 billion from $1.09 billion.
Analysts, on average, were expecting earnings of 18 cents a
share on revenue of $1.06 billion, according to Thomson
Reuters.
Write to Douglas MacMillan at douglas.macmillan@wsj.com
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