Will the Yahoo and Microsoft search alliance do the Sunnyvale, Calif., company more harm than good, or more good than harm in the long run? The alliance seems to have reignited an identity crisis. I thought the company had extinguished the fire, but earnings clearly show that's not the case.
Yahoo reported Tuesday a profit of $396.1 million, or 29 cents a share, during the third quarter, more than double the 13 cents it reported a year ago. But its earnings got a 13-cent boost from the sale of its HotJobs classified site during the quarter.
Revenue from display advertising rose 17%, but sales of search ads fell 7%. On the call, executives reiterated the paid search transition to Microsoft's adCenter ad-serving platform should be complete in the U.S. and Canada by the end of October.
In the call, Yahoo CEO Carol Bartz explained how the company had to answer the big question of how best to compete in search, which at the time was another declining trend; and figure out ways to create better platforms and infrastructure across the company, so it could move more quickly to deliver the kind of quality content and experiences users and advertisers deserve.
"Once we get the right things in place like the new global News platform or the completion of the search transition to Microsoft, we can really fly," Bartz said on the earnings call.
Yahoo's revenue growth would have been even better if not for two items related to the search transition, according to Bartz.
1) Search campaigns slowed as advertisers waited to move to Microsoft adCenter rather than entering their campaigns twice.
2) When Yahoo transitioned the algo search, the new results were so much better that users clicked on the top organic results more and clicked on paid ads less.
Despite these transitional items, Yahoo reported RPS rose roughly 1% compared with last year and the prior quarter. Prior to that the last time RPS rose year-over-year was eight quarters ago in Q3 of 2008. In the quarter, the company also focused on growing search volume. Bartz said in the first in a series of search enhancements, search trends continue to show "promising results with increases in click-throughs and engagement."
But identity seems to play out as one of the biggest problems Yahoo faces. In Bartz's attempt to turn the company around, hopping from one message to another only seems to confuse media, investors, analysts and onlookers more. Yahoo turned from a network of portals to a search engine to an innovative technology company that operates the largest digital media, content, and communications business in the world in a matter of one year.
Pick one message and stick to it, for gosh sakes. Even more disruptive than the misguided branding efforts, Yahoo can't shed the controversy surrounding the company's internal shakeup. Reports also surfaced that the company has faced a string of high-profile executive departures in recent weeks and AOL and private-equity firms continue to consider a takeover bid.