Yahoo Looks to Bright Side After Breach -- WSJ
October 19 2016 - 3:03AM
Dow Jones News
By Deepa Seetharaman
Yahoo Inc. on Tuesday posted an increase in third-quarter profit
and said usage of its email product has increased slightly since
disclosing a massive data breach that was announced last month,
rare bits of good news as it clings to a deal to sell itself to
Verizon Communications Inc .
The number of mail messages sent and read, as well as the number
of page views, rose slightly since Yahoo's announcement on Sept. 22
that user data from 500 million accounts were stolen in a 2014
breach that the company only recently discovered, the company
said.
Yahoo reported quarterly earnings of $162.8 million, or 17 cents
a share, and 20 cents a share excluding certain expenses. The
company also issued a stronger-than-expected earnings outlook for
the current quarter.
"Frankly, I look at the numbers, they're not that bad relative
to what they could have been," said JMP Securities analyst Ron
Josey. "It should be somewhat more comforting to see that things
aren't falling off a cliff."
But Yahoo's core advertising business continues to deteriorate.
Third-quarter revenue excluding commissions paid to partners for
web traffic fell 14% to $857.7 million, marking the seventh decline
in the past eight periods for this key metric.
Verizon executives were generally pleased with the
better-than-expected profit and stable user engagement since the
breach, according to a person familiar with the company's
thinking.
Mr. Josey said it was still too early to say how Yahoo traffic
might fare in the months to come, and the underlying trends of
Yahoo's advertising business remain weak. But Yahoo's
fourth-quarter outlook and early user trends suggested the company
might contain the damage from the breach situation, he said.
"In addition to our continued efforts to strengthen our
business, we are busy preparing for integration with Verizon,"
Yahoo CEO Marissa Mayer said in a statement. She added the company
was working to retain users' trust and is "heartened" by recent
usage trends.
Shares of Yahoo rose 1.4% in after-hours trading.
Analysts, on average, expected the company to post adjusted
earnings per share of 14 cents, according to Thomson Reuters. The
beat stemmed from a bigger-than-expected boost from its stakes in
Yahoo Japan and Alibaba, Mr. Josey said.
Overall revenue rose 6.5% in the third quarter to $1.23 billion,
helped by a recent change in how the company reports revenue.
Yahoo expects between $260 million and $300 million in adjusted
earnings before interest, taxes, depreciation and amortization in
the current quarter. Analysts had expected around $245 million in
the same period.
Ms. Mayer's attempt to focus the company on video and search
hasn't generated meaningful revenue growth. Dissatisfaction in Ms.
Mayer's performance prompted activist investor Starboard Value LP
to pressure the company into a sale. Verizon announced it would buy
Yahoo for $4.8 billion in July.
Revenue from "Mavens" -- a grouping she introduced last year to
track mobile, video, native and social ads -- rose 24% to $524
million in the third quarter. But when stripping out a change in
the way Yahoo reports revenue, Mavens revenue fell 6.3% to $397
million. This was the second-straight decline for the segment,
which Ms. Mayer last year said was core to Yahoo's growth and would
offset declines in its legacy business.
Yahoo is also losing share in a rapidly growing online
advertising market. Yahoo will command 1.8% of the world-wide
digital ad revenue this year, down from 2.4% in 2015, according to
eMarketer. The data firm also said Yahoo's ad revenue will drop
10.2% in 2016 after a 3.5% decline last year.
The third-quarter earnings report comes as clouds gather around
Verizon's $4.8 billion deal following Yahoo's disclosure last month
of the data breach, one of the largest thefts of personal data to
date. The internet company said "state-sponsored" hackers
penetrated its network in late 2014 and stole personal data
including names, dates of birth and encrypted passwords.
Yahoo has said the breach was discovered after the merger deal
was signed in July.
Last week, Verizon's general counsel suggested the breach might
allow the company to renegotiate the deal's terms; Yahoo responded
by saying it was confident in its value. Analysts expect the deal
will go through but may require further concessions from Yahoo.
Yahoo decided to skip its third-quarter analysts' call because
of its sale to Verizon, allowing it to sidestep any thorny
questions about the deal and the data breach, as well as prospects
for its core business.
--Ryan Knutson contributed to this article.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com
(END) Dow Jones Newswires
October 19, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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