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No Respite for Yahoo Yet

Posted on Tuesday, Jul 28th 2015

Yahoo’s (Nasdaq: YHOO) results sound like a broken record now. The company continues to disappoint the market and keeps floundering around in the hope of finding a strategy that will work.

Yahoo’s Financials

Yahoo’s second quarter revenues fell marginally to $1.04 billion, managing to beat the Street’s target of $1.03 billion. But despite the good news on revenues, their EPS of $0.16 was short of the market’s forecast of $0.18.

By segment, display revenues excluding traffic acquisition costs (TAC) were up 3% over the year with the number of ads sold increasing 9% over the year. Things aren’t all that gloomy considering that Yahoo managed to improve pricing on these ads by 10% compared with the four quarters of decline reported earlier. Search revenues fell 3% over the year despite the price per paid click improving 4%. The decrease was attributed to foreign currency movement. Yahoo’s mobile segment is seeing strong growth with revenues growing 54% over the year. Yahoo has over 600 million users accessing their services through a mobile device. Revenues from other sources fell 2% over the year.

For the current quarter, Yahoo projected revenues of $1 billion-$1.04 billion, falling short of the Street’s forecast of $1.07 billion.

Yahoo’s Initiatives

It is not that Yahoo is not trying to improve their offerings. During the recently ended quarter, they announced several innovations for their core products. Within mobile search, they introduced a new feature for the US users to improve search results. The new feature connects users to the people, places, and things that interest them by using context and location cues and leverage them to deliver relevant search results. For Yahoo Mail, they are now enabling users to instantly share web pages when using Firefox and have integrated Twitter and LinkedIn information in Contacts along with adding the ability to receive breaking news notifications via Mail through the news feed tab.

Yahoo continued to invest in content and earlier this month released Daily Fantasy, as part of their Yahoo Fantasy app that provides users a chance to win money every day with new fantasy lineups. They also tied up with NFL to live stream an International Series Game between the Buffalo Bills and the Jacksonville Jaguars from London this fall and extended their partnership with Live Nation through a live streaming of a music festival. They also launched several new daily programs including finance news, world news, and entertainment programming and added 14 new shows across their digital magazine channels.

They are helping marketers by improving their ad offerings. Advertisers now have the ability to choose from accredited, third-party vendors for fraud measurement across display and video at every stage of the campaign lifecycle. Driven by the rise of video ad formats, they’ve introduced native video and video app-install ads. The native video ads allow advertisers to integrate their brand content into Yahoo’s homepage, digital magazines, and apps. The video app-install ads integrate video ads with install ads to help drive app installs for the marketer. Yahoo is also improving mobile targeting by allowing marketers to leverage the capabilities of both Yahoo and Flurry Persona data.

Yahoo’s Worries

Yahoo’s big concern lies in their inability to deliver growth in their net revenues. Players like Google have managed to report a stellar 13% growth in net revenues, but Yahoo’s revenue has remained flat for the quarter. Also, while revenues are not rising, costs continue to do so. Driven by the high ad commissions paid to their partners, Yahoo ended the quarter with a net loss of $22 million. In fact, this was one of the rare quarters for Yahoo where they delivered a negative free cash flow.

Earlier this year, Yahoo filed papers for a spin-off of their Alibaba holdings into a separate company Abaco. The move is expected to help Yahoo focus on their core business. But some believe that the spin-off is primarily being conducted to show some profits on Yahoo’s financial statements.

Analysts estimate Yahoo’s Alibaba holdings to be worth $32 billion out of Yahoo’s current market capitalization of $36.5 billion. Excluding Alibaba, Yahoo appears to be in tatters. Their stock is currently trading at $37.83 and had reached a year high of $52.62 in November last year.

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