• by Tameka Kee , July 18, 2007

Yahoo's top brass dropped less than stellar numbers on shareholders during Tuesday's earnings call. But in their new roles as the Web giant's CEO, president, and CFO, respectively, Jerry Yang, Sue Decker and Blake Jorgensen vowed to deliver better financial performance--and with a definite sense of urgency--through better technology, continued emphasis on strategic partnerships, and a leaner, more decisive organizational structure.

The forecast was mixed, but the executive team was cautiously optimistic, as second-quarter 2007 revenue came in at almost $1.7 billion--an 8% increase from the same quarter last year. Gross profits were also up to a little over $1 billion--a 9% increase from last year's $930 million.

But Yahoo's free cash flow--a figure that Jorgensen described as "the most important metric"--came in at $328 million, down 8% from the second quarter of 2006. And the Web giant's second-quarter 2007 operating revenue was $185 million--a whopping 18% decrease year-over-year.

Yang acknowledged that the revenue outlook was lower than the company had previously forecast, but was adamant about improving performance, both in the short and long run. "I intend to spend the next 100 days mapping out a strategic plan to ensure [Yahoo's] success," said Yang. "I see this as the most important transformation in the company's history."

According to market analysts, changing the tides on advertising revenue is a pivotal step. While the second-quarter 07 marketing services revenue came in at more than $1.4 billion, the 7% increase year-over-year was much lower than expected.

Yahoo is slated to rake in more than $3.5 billion in online ad revenue this year, according to eMarketer. But even as the total U.S. Internet advertising market expands, Yahoo's growth is slowing, and the Web giant is still losing market share to Google.

The firm is predicting Yahoo's market share will drop to a little over 16%, down from almost 18% last year. In contrast, Google's share is forecast to grow to 27% this year, up from last year's 24%. And both industry analysts and financial types are expecting the trends to continue.

Analysts at RBC Capital noted that Panama--the next-gen search advertising platform that Yahoo began to integrate late last year--"was modestly successful," stabilizing the Web giant's market share slide from 2006, but not reversing it. The report, a joint effort between RBC Capital and Search Ignite, went on to say that Panama had "only temporarily halted Google's gains in market share."

Still, Decker touted "real financial gains this quarter" from the Panama rollout as the new platform earned Yahoo double-digit increases (between 15 and 20%) in revenue per search compared to last quarter. But Decker also acknowledged that future earnings numbers would still be dampened by the phasing out of pre-Panama search marketing affiliates' revenue.

Decker outlined Yahoo's past missteps or "legacy issues" that were hampering financial growth. They included failing to integrate Overture's search technology and sales assets immediately following the acquisition, choosing to focus on major brand advertisers (as opposed to diversifying into direct response categories) for display ad sales, as well as fostering a corporate climate that was risk-averse to making executive decisions.

But Decker maintained that the company would be bouncing back--leveraging Right Media's technology and talent from the onset (as the acquisition of the ad exchange has closed), continuing to innovate with launches such as the new customizable SmartAds, in addition to continuing to develop an operational structure that focuses on the execution of clearly defined goals for Yahoo's audience, advertisers, and publishers.

Yang also outlined three key areas that Yahoo would be concentrating on to become a stronger player in the online ad marketplace in the near term--leveraging insights to create a more personalized user experience (and a more targeted audience for marketers), fostering openness among publishers and advertisers, as well as becoming the trusted industry partner of choice for all types of digital advertising opportunities.

"Based on the hundreds of people--employees, investors, partners, advertisers, users, peers--who've reached out to me over the past month, there seems to be no shortage of folks who want Yahoo to succeed," said Yang, who took over from Terry Semel in June. "Put me at the top of that list."