Yahoo Tops Earnings Expectations In Q3

Yahoo on Tuesday reported better-than-expected financial results in the third quarter, perhaps giving CEO Marissa Mayer more breathing room to turn around the struggling Web giant.

The company said revenue -- excluding traffic acquisition costs -- rose 1% from a year ago to $1.09 billion for the quarter ending in September. Yahoo itself had forecast revenue in the range of $1.02 billion to $1.06 billion.

It also saw adjusted earnings surge to $543 million -- or 52 cents a share -- up from $358 million, or 34 cents, a year ago.

The strong earnings gain reflected the sale of its stake in Alibaba Group last month, generating a $5.8 billion windfall for the company. 

Analysts surveyed by FactSet had expected Yahoo to earn 32 cents a share, on revenue of $1.05 billion.

“We achieved this revenue growth through strong growth in our new areas of investment - mobile, social, native and video - despite industry headwinds in some of our large, legacy businesses," said Mayer, in the earnings release. Yahoo for the first time separately reported mobile revenue — of $200 million — which it said had doubled in the last year.

But the Yahoo CEO has come under pressure since last month from activist investor Starboard Value over the company's stalled growth. The firm called for Yahoo to explore a merger with AOL, reduce costs and split off its Asian assets, which also include Yahoo Japan.

Yahoo has made more than 40 acquisitions to date during Mayer's tenure, but most have been small-scale deals except for the $1.1 billion spent to purchase blogging site Tumblr.

Speculation over how Yahoo will spend the $5.8 billion gained through the Alibaba initial public offering heated up early Tuesday with TechCrunch reporting the company is in talks to buy programmatic video ad platform BrightRoll for about $700 million. 

For now, Yahoo's display ad business continues to struggle to compete for ad dollars against Internet rivals Google and Facebook.

Specifically, the company's display ad revenue, minus traffic acquisition costs, fell 6% to $396 million from $421million a year ago. That follows a 7% drop in the second quarter and declines in six of the last seven quarters. Yahoo said the number of ads sold increased about 24% from a year ago, but the price per ad fell by the same percentage.

During Yahoo earnings conference call, Mayer called the display results “mixed,” with gains in growth areas like social and mobile offset by declines in its traditional desktop advertising.

The company's search business again showed better results, posting a 6% gain to $450 million from $426 million a year ago. The number of paid clicks was flat from a year earlier, but the price-per-click increased 17%.

To put Yahoo's results in perspective, the Interactive Advertising Bureau (IAB) reported Monday that Internet ad revenue—including display, mobile, video and search--rose 15% to $23.1 billion during the first six months in 2014, compared to the same period a year ago.

The Web portal will account for just 4.9% of the estimated $50.7 U.S. billion online advertising market this year, down from 7.2% in 2013, according to eMarketer. Meanwhile, Facebook is expected to increase its share to 9.7% from 7.6%, while Google will see its dominant share dip slightly to 38.3% from 39.7%.

Mayer would not comment specifically on the reported acquisition talks with BrightRoll, or other potential targets, saying on the company would continue to look at “building block acquisitions” that improve Yahoo's technology. She also reiterated that video was a key part of the company's investment strategy.

The Yahoo CEO also highlighted the strides Yahoo has made in its mobile business, which accounted for about 17% of its total revenue in the quarter. The company projects gross revenue from mobile will top $1.2 billion this year. As a growing share of its more than 800 million users shift to mobile devices, Yahoo plans to increasingly monetize that traffic through native advertising, Mayer said.

Native ads on Yahoo across the desktop and mobile accounted for $65 million in the third quarter, with that total expected to reach 80 million in the current quarter. 

Yahoo bolstered its mobile ad business through the July acquisition of in-app advertising platform for more than $200 million. The company has made a series of smaller acquisitions to acquire technology and talent to bolsters its mobile operations in the last two years.

Looking ahead, Yahoo CFO Ken Goldman said the company  projects fourth-quarter revenue, minus costs, of $1.14 billion to $1.18 billion. The company's shares were up 2.6% to $41.23 in after-hours trading after closing Tuesday at $40.18.

1 comment about "Yahoo Tops Earnings Expectations In Q3".
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  1. Matt Cooper from Addroid, October 22, 2014 at 2:58 p.m.

    I think when you talk about display ad revenue being down for Yahoo! you have to also remember that they completely dropped rich media in lieu of their in-house Native ad platform. It sounds forward thinking or on trend to go Native, but the reality is that the platform doesn't even support a standard ad tag. The creative they are struggling to sell is actually just a static JPG with a snippet of copy. While the sales team laments internally—they have nothing to sell—the ad revenue drops in direct proportion to the limited creative options they now offer. I don't think full-page takeovers are the answer but there's a sweet spot between that and a static JPG: the first type of ad unit deployed twenty years ago. Certainly I think we're seeing now how Native, while it has it's place and value in specific circumstances, doesn't actually scale. A lowest common denominator creative execution isn't something that excites advertisers.

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