Yahoo revenue and profit surpass expectations

Marissa Mayer finally has something to crow about as Yahoo reported a robust third-quarter performance this week, breaking a long pattern of revenue decline and posting profits from its core operations that far exceeded Wall Street expectations.

Mobile, long a bête noire for Yahoo, has for the first time contributed meaningfully to its results. Mayer, Yahoo’s CEO, said mobile revenue exceeded $200 million in the quarter, and she expected it to top $1.2 billion for the full year.

Yahoo and its Tumblr unit had 550 million monthly users on mobile devices during the quarter, up 17 per cent from a year ago. Overall, the company's services have more than one billion monthly users.

Tops expectations

Yahoo’s stock rose 2 per cent in after-hours trading after release of the numbers. Yahoo posted revenue of $1.15 billion for the quarter, a 1 per cent increase from the period in 2013 and beating Wall Street’s projection of $1.05 billion.

Net income was $6.78 billion, ballooned by an after-tax profit of $6.3 billion from Yahoo's sale of a stake in the Alibaba Group as part of the Chinese company's initial public offering in September.

In the third quarter last year, Yahoo posted revenue of $1.14 billion and net income of $297 million.

While the underlying results were strong, for many investors the figures are almost beside the point. Shareholders are itching for more clarity on Mayer’s strategy for turning around the aging Internet company and using the Alibaba proceeds.

In recent years, Wall Street has placed little value on Yahoo’s core business of selling advertising on its websites and mobile apps.

Yahoo, which published the leading directory to the Internet before Google even existed, has been declining for years, a trend that has been slowed but not definitively reversed by Mayer during her two-year tenure.

Digital ad decline

Although Yahoo’s pages still draw tremendous traffic, it is losing ground to Google and

Facebook

in advertising. Research firm eMarketer projects that Yahoo’s global market share of digital advertising will drop to 2.4 per cent this year, down from 2.9 per cent in 2013, as the company’s display and search advertising slips further.

In a webcast to discuss Yahoo’s results, Mayer offered few concrete details about the company’s acquisition strategy, although she suggested that big purchases would be limited, with a particular focus on “building block acquisitions” to replace Yahoo’s often outdated technology.

Underlining her commitment to returning money to shareholders, Mayer noted that in her time as CEO, Yahoo has spent $7.7 billion to buy back 24 per cent of its stock, compared with the $1.6 billion spent on acquisitions.

Mayer also said the company was looking at ways to improve search on mobile devices through apps such as Aviate. – New York Times Service