By Douglas MacMillan
Marissa Mayer is finally seeing modest growth at Yahoo Inc., but
it is coming at a cost.
The company on Tuesday reported its second-quarter revenue rose
15% to $1.24 billion, its highest quarterly revenue increase in
almost nine years.
But the cost of acquiring traffic jumped sharply to $200.2
million from $43.8 million in the year-earlier period as Yahoo
began paying partners including Mozilla Corp. and Oracle Corp. more
money for users. Excluding traffic costs, revenue was nearly flat
in the second quarter.
Those costs are adding up as Ms. Mayer, three years into her
tenure as chief executive of the aging Internet portal, bets
heavily on emerging areas including mobile, search and video ads.
In order to funnel millions of users into its search engine, Yahoo
has struck deals to pay a portion of its revenue from each search
to partners such as Mozilla.
The growing portion of revenue Yahoo is paying its partners
"isn't a healthy sign," said Mark Mahaney, analyst at RBC Capital
Markets.
Traffic expenses are likely to rise this year as Yahoo invests
in building out its mobile search engine, Ms. Mayer said in a call
with analysts. The company expects earnings before interest, taxes
depreciation and amortization in the current quarter of $200
million to $400 million, lower than analysts expected.
"We are investing heavily to grow market share," Ms. Mayer said.
"These deals are important distribution vehicles for our search
products."
Yahoo shares fell 1.3% in after-hours trading to $39.20.
Revenue from "Mavens"--a financial metric the company introduced
earlier this year to track mobile, video, native and social ads--is
growing. Mavens revenue makes up about 32% of the company's total,
growing 60% to $399 million in the second quarter.
Revenue from display ads, excluding the traffic costs, rose
3.3%, to $406.7 million.
Ms. Mayer has made some of her boldest bets on new mobile and
video offerings this year, such as a foray into legal online
gambling. Ms. Mayer said 1.3 million users have tried the Daily
Sports game in the two weeks since it launched, with half of them
wagering real money.
In May, Yahoo announced it had won the exclusive rights to the
National Football League's first streaming-only broadcast of a
football game, a deal costing the company more than $20 million, a
person familiar with the matter said at the time.
Yet search remains a priority for Ms. Mayer, who in June
unveiled a new version of Yahoo's search engine for mobile phones.
The company earlier this year renegotiated its partnership with
Microsoft Corp., a deal that gave Yahoo more control over the
search results and ads it shows on desktops and mobile phones.
Search revenue, after commissions paid to partners, fell 3% in
the second quarter, to $415 million.
Yahoo posted a loss of $21.6 million, or 2 cents a share,
compared with a year-earlier profit of $269.7 million, or 26 cents
a share. On an adjusted basis, earnings were 16 cents, falling just
below analyst estimates of 18 cents a share.
Ken Goldman, Yahoo's finance chief, said on the call with
analysts that the company is reviewing ways to "maximize value"
from its shares in Yahoo Japan. But it doesn't plan to take any
action on that stake until after it completes the spinoff of shares
in Alibaba Group Holding Ltd. , still expected by the end of the
year.
Write to Douglas MacMillan at douglas.macmillan@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires