The Web giant Tuesday reported slowing revenue growth in the fourth quarter amid continued ad weakness on the display side. Net revenue was $1.2 billion, down 1.7% from $1.22 billion a year ago. For all of 2013, net revenue fell 1% to $4.4 billion.
Display advertising in the fourth quarter, excluding traffic acquisition costs, fell 6% to $491 million, while search (ex-TAC) rose 8% to $461 million. Yahoo posted an adjusted profit of 46 cents a share, compared to 35 cents a year ago.
Wall Street had expected earnings of 38 cents a share on revenue of $.1.2 billion.
Since taking over as the company's chief executive 18 months ago, Mayer's focus has been on relaunching core properties like the Yahoo home page, Yahoo Mail and Flickr, as well as rebuilding morale internally. She has also led Yahoo on a buying spree, making some 30 acquisitions to bring promising technologies and startup talent into the company.
Tumblr has been by far the biggest purchase, at $1.1 billion.
Those efforts have helped build Yahoo's audience -- by 20% to 800 million active users globally since Mayer's appointment -- but so far have not translated into ad gains for the struggling Web portal. Display advertising, which makes up 41% of Yahoo's revenue, has shown quarterly declines throughout 2013, and the results reportedly played a big part in De Castro's dismissal.
Externally, Yahoo has also had to contend with Facebook and Google taking growing shares of the display business it once dominated. Yahoo's share of the U.S. display ad market last year fell to 7.2%, while category leader Facebook increased its share to 17.9% from 14.8%. Google held a 16.9% share.
Yahoo continues to lose ground to both Google and Microsoft in its other key business -- search. Yahoo's share of queries in the U.S. declined throughout 2013, falling to 10.8% in December from 12.2% in the year-earlier period, and from 14.5% two years ago.
"We still struggle to understand the reason for YHOO search to exist in a world where browsers are the search bar and as voice activated search takes more share,” wrote Ben Schachter, an analyst with Macquarie Securities, in a research note on Yahoo's Q4 earnings this week.
Yahoo remains dependent on its search agreement with Microsoft. In a securities filing last month, it disclosed that it gets nearly a third (31%) of its revenue from the deal. Guarantees that Yahoo gets from Microsoft on revenue per search under the pact are set to expire in March, but could be renewed again as in the past.
Schachter acknowledged that the 8% quarterly gain in search was “surprisingly strong.” Paid clicks increased 17%, benefiting in part from the search home page redesign last year, while price-per-click fell 3% due to the shift toward lower-priced international clicks.
Summing up, Mayer characterized 2013 as a year of doing many smaller but important things, while “2014 is about doing bigger things in key areas of growth. Fewer changes, but each larger and more strategic.”
The main goal remains the same, however -- reigniting revenue growth. The Yahoo CEO herself has stated that the company's turnaround will take several years. But will investors' and board members' patience last that long?
Yahoo's share price has doubled in the last year, but that's mainly a reflection of investors betting on returns from the expected initial public offering of Alibaba, the eBay of China in which Yahoo holds a 24% stake. “The bottom line is that Alibaba remains the driving factor for the stock,” note Macquarie's Schachter.
And with the e-commerce giant's growth slowing the latest quarter, Yahoo’s stock fell more than 5% in after hours trading to about $36 a share after closing Tuesday at $38.22.