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Yahoo! Inc gave a revenue forecast that fell short of analysts' estimates as Chief Executive Officer Marissa Mayer puts more focus on building products than drumming up immediate sales at the largest US web portal.
Sales, excluding revenue passed to partner sites, will be $1.06 to $1.1 billion in the current quarter, Yahoo said on its website Tuesday. Analysts were projecting revenue of $1.12 billion, the average of estimates compiled by Bloomberg. Second-quarter sales fell one per cent to $1.07 billion, also missing analysts' $1.08 billion prediction.
Mayer, one year into her leadership of Yahoo, said on a call with analysts that she's in the early stages of a turnaround centred on creating new products aimed at luring consumers and advertisers from Google Inc and Facebook Inc. While her efforts have added users, investors expecting revenue growth will have to be patient, said Paul Sweeney, an analyst at Bloomberg Industries.
"Marissa's investments in product are a long-term play to drive user engagement and hopefully revenue growth," Sweeney said. "Judging by the company's guidance, these investments clearly will have little to no near-term benefit."
Yahoo, based in Sunnyvale, California, gained one per cent in late trading to $27.11, after falling as much as 3.2 per cent to $26.01. The shares declined 1.7 per cent to $26.88 at Tuesday's close in New York, leaving them up 35 per cent this year. Since Mayer's first day as CEO on July 17, 2012, Yahoo has surged 72 per cent.
Alibaba gains
Most of Yahoo's gains in the past year were driven by the appreciation of its stakes in Alibaba Group Holding Ltd and Yahoo Japan Corp, according to Mark Mahaney, an analyst at RBC Capital Markets in San Francisco.
Alibaba tripled its net income in the first quarter of this year, to $669 million from $220 million a year earlier, Yahoo said on Tuesday on its website. Yahoo owns 24 per cent of the Hangzhou, China-based online marketplace, which may hold an initial public offering by the end of this year.
"Alibaba is showing a lot of operating leverage," Sameet Sinha, a San Francisco-based analyst at B Riley & Co, said in an interview. "They built this huge marketplace in China and they started charging people. All of a sudden this is falling straight to the bottom line."
Yahoo made $225 million in earnings in the second quarter from its equity interest in both Alibaba and Yahoo Japan, up from $180 million in the same period last year. Second-quarter profit at Yahoo, excluding some items, was 35 cents a share. Analysts had projected, on average, profit of 30 cents.
Market share
Yahoo's share of the $17.5-billion market for display ads, its core business, will slip to 7.9 per cent in 2013 from 9.2 per cent last year, estimates researcher EMarketer Inc. Google will climb almost three percentage points to 18 per cent, while Facebook will increase about two points to 17 per cent, EMarketer said.
Yahoo's sales of display ads decreased 12 per cent to $472 million in the second quarter. That was driven in part by advertisers paying lower prices per promotion, as marketers shift away from buying the large-format graphic ads that Yahoo specialises in, according to Colin Gillis, an analyst at BGC Partners LP in New York, who rates the shares hold.
Net income attributable to Yahoo rose 46 per cent to $331.2 million, Yahoo said.
Chain reaction
Mayer described her turnaround plan as a "chain reaction" of steps that will eventually lead to sales growth.
"Hire and retain a great team; build inspiring products that will attract users and increased traffic; that traffic will increase advertiser interest and ultimately translate to revenue," Mayer said on Tuesday's call, which was broadcast via video on the web. "People, then products, then traffic, then revenue."
Yahoo lowered its forecast for 2013 sales, excluding revenue passed to partner sites, to as much as $4.55 billion. That's lower than the $4.6 billion it said was possible in April, and the company predicts only a slight improvement over last year's $4.47 billion.
"We could have another year of absolutely no growth," Sinha said.
Mayer has embarked on a shopping spree that comprised at least 17 companies, including her $1.1-billion purchase of blogging platform Tumblr Inc, as well as mobile-application makers Stamped Inc and Jybe Inc and Summly Ltd, the news-reading application created by teenager Nick D'Aloisio. Earlier this month, Yahoo paid about $70 million for Xobni Corp., a maker of contact-management software, two people said at the time.
Yahoo repurchased 25.3 million shares of stock at an average price of $25.76 for $653 million in the second quarter.
