Yahoo Bests Revenue, Earnings Expectations


Yahoo’s fourth-quarter financial results showed Marissa Mayer still has plenty of work to do to reignite growth at Web giant, especially on the display ad side. Search advertising, however, was again a bright spot in the quarter.

The company on Monday reported adjusted earnings of 32 cents a share, compared to 25 cents a share, in the year-earlier period. Revenue -- minus payments to partner sites -- was $1.2 billion, up 4% from a year ago.

Analysts, on average, had expected Yahoo to post a profit of 28 cents share and revenue of $1.2 billion.

Since taking over as Yahoo CEO six months ago, Mayer has laid out broad plans to revitalize the company by upgrading the user experience and focusing on mobile development as Web consumers increasingly shift to handheld devices.



But the ex-Google executive has acknowledged that the task of restoring Yahoo to its former glory could take years. In the earnings announcement, she noted that Yahoo's revenue growth in 2012 was up for the first time in four years, with a 2% gain. 

“We have a lot of work ahead of us, but we’re seeing early positive trends,” Mayer said during the conference call. She added the company has identified a dozen key properties it will focus on overhauling after relaunching Yahoo Mail and a new Flickr app in the quarter.

Search is one of the core areas at Yahoo that Mayer aims to revamp, expressing disappointment with the company’s long-term search agreement with Microsoft. Revenue from search advertising, minus payments to ad partners, in the fourth quarter rose 14% from a year ago to $427 million. That’s up even from the 11% gain in the third quarter. 

Stifel Nicolaus analyst Jordan Rohan stated in a Monday report that channel checks have shown Yahoo has maintained relative strength in monetization, or revenue per search.

With this quarter, Yahoo introduced new metrics for both search and display,  reflecting the volume and pricing of ads. The number of paid clicks in the fourth quarter increased 11%, for example, while the price per click went up 1%.
Mayer said that holiday shopping likely boosted paid clicks in the fourth quarter, with users clicking on multiple ads in the same search. She also sounded a more positive note on the search alliance with Microsoft during the conference call, suggesting the companies’ teams were working well together.

Even so, Yahoo continues to trail Google and Bing in search market share. According to comScore, Yahoo’s search share was roughly flat at 12% in the U.S. in December, with overall query volume falling 21% in the U.S. and 22% worldwide.

Yahoo’s other key business -- display advertising -- continued to sputter. Sales fell 5% from a year ago to $520 million. Under COO Henrique De Castro, who joined Yahoo from Google in October, the company’s ad sales operation is shifting to one organized by industry vertical rather than region or type of advertising.

“This transitional period, along with some macro softness in Europe continues to be a factor,” wrote JP Morgan analyst Doug Anmuth in a Yahoo earnings preview. He had projected that display revenue would fall just 1.2% in the fourth quarter to $539 million. Yahoo said the total number of display ads sold fell 10% in the quarter, while the price per ad increased only 7%.

According to an eMarketer forecast, Yahoo’s share of the U.S. display ad market is expected to fall to 9.3% this year from 11%, while Google’s will rise to 15% and Facebook’s will remain roughly the same, at 14%.

Yahoo’s stock has recently been trading at $20 a share for the first time since 2008 on optimism about Mayer’s ability to revive its status as an online innovator. Its shares were up almost 5% in after-hours trading to more than $21 a share immediately following its earnings announcement.

Looking ahead, Yahoo projects net revenue of $1.07 billion to 1.1 billion for the first quarter of 2013, and $4.5 billion to $4.6 billion for the full year.


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