Yahoo Q1 results miss expectations on both lines
Yahoo (YHOO) logged first-quarter profits and sales Tuesday that fell short of analysts' expectations, as the company continued to show slow progress finding new sources of growth.
The parent of Yahoo Finance posted adjusted earnings of 15 cents a share, missing estimates in a FactSet Research Systems survey by three cents. Meanwhile, sales, excluding traffic acquisition costs, of $1.04 billion also came in short of expectations of $1.06 billion.
Shares of Sunnyvale, Calif-based Yahoo fell almost 2% in extended trading after the results were announced. But the share price recovered and gained 1% after CEO Marissa Mayer told analysts that the company is investigating what to do with its stake in Yahoo Japan, worth about $8 billion. Before the results were released, Yahoo shares had lost 12% so far this year.
Speaking on a webcast for analysts, Mayer said the company has retained advisers to investigate how to maximize the value of the Yahoo Japan stake. Yahoo plans to divest its 15% stake in Chinese ecommerce giant Alibaba (BABA) via a tax-free spin-off, but hasn't announced a similar plan for the Yahoo Japan stake. Activist hedge fund Starboard Value has urged Yahoo to spin-off the Japanese stake, as well.
Mayer has been seeking new sources of revenue growth as Yahoo's once-strong personal computer display advertising business has fallen on hard times. She has emphasized opportunities in mobile, video, native and social advertising. The push has resulted in gains for those categories, but not enough to offset shrinking revenue in Yahoo's traditional lines of business.
In the first quarter, revenue from the four growth categories increased 58% to $363 million, but that was still slightly less than 30% of Yahoo's overall gross revenue of $1.23 billion. Gross revenue was up 8% from a year earlier, but the fees Yahoo must pay for acquiring search traffic ate up the increase, resulting in a 4% decrease in net revenue, the important figure for investors and analysts.
Yahoo's gross revenue was bolstered by a new deal with Mozilla to displace Google (GOOGL) as the default search engine in the Firefox browser. But the deal also included heavy traffic acquisition costs. The deal is off to a "terrific" start and is already profitable for Yahoo, Mayer said on the webcast for analysts.
The quarter ended before Yahoo announced a revised deal with Microsoft (MSFT) over search results and search advertising. The changes won't impact Yahoo's results for several more quarters, Mayer said on the webcast.
Mayer has said previously that Yahoo would also like to displace Google as the default search tool on Apple's (AAPL) iPhone later this year.
Total display ad revenue actually increased 2% from the first quarter of 2014 to $464 million but remains below the level of a few years ago. And after subtracting traffic acquisition costs, display ad revenue was down 7% to $381 million.
“Yahoo is amidst a multi-year transformation to return an iconic company to greatness," CEO Mayer said in a statement. "This quarter, we saw encouraging revenue growth of 8%, with display revenue growing a modest 2% and search growing 20% on a GAAP basis. Our mobile GAAP revenue reached $234 million in Q1, growing 61% year-over-year."
(Update: This story was corrected on April 21 to show that Yahoo's adjusted earnings per share were 15 cents for the first quarter.)
