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Yahoo Leans on Google Now

Posted on Thursday, Oct 22nd 2015

Three years back, Marissa Mayer took on Yahoo’s (Nasdaq: YHOO) leadership to turn around a failing company. Today, Yahoo does not appear to have done significantly better. Quarterly results continue to disappoint and their flailing attempts to fix a broken ship don’t appear to be bearing much results.

Yahoo’s Financials

Yahoo’s third quarter revenues grew 7% over the year to $1.226 billion, short of the Street’s target of $1.256 billion. EPS of $0.15 was marginally shy of the market’s forecast of $0.16.

By segment, gross search revenues grew 2% to $870 million. Among key metrics, the number of Paid Clicks increased 5% over the year and price per click fell 2% over the year. Display revenues grew 14% to $509 million with the number of ads sold and price per ads both growing 8% over the year. Mobile revenues also reported a steady increase. Revenues from mobile devices grew from $207 million a year ago to $271 million. Contribution to traffic revenues from mobile devices has increased from 20% a year ago to 24% this year. PC revenues grew from $815 million a year ago to $844 million.

For the current quarter, Yahoo projected revenues of $1.16 billion-$1.2 billion, falling short of the Street’s forecast of $1.3 billion.

Yahoo’s Growth Plan

During the quarter, Yahoo continued to address several of its growth issues, but none of them appear to be yielding quick results. Last quarter, they announced a new version of the Yahoo Mail app that comes with additional features such as quick transitions and the ability to manage outside email accounts along with Yahoo Account Key, a password-free, yet secure sign-in experience.

Last month, they announced the acquisition of Polyvore, a social shopping site, for an estimated $200 million. Polyvore was founded in 2007 by three former Yahoo engineers. The company had become known for their digital corkboard that allowed users to pick and share clothing ensembles. Polyvore had successfully integrated mobile commerce in their offering by allowing users to purchase products directly from a retailer by clicking on a link in the description. The acquisition is intended to accelerate Yahoo’s Mavens (mobile, video, native, and social) growth strategy. Yahoo will also integrate Polyvore’s curated fashion collections into their digital fashion magazines. Meanwhile, Polyvore will operate as a separate site and app and use Yahoo’s Gemini platform to sell ads.

In a surprising move, Yahoo also entered into an agreement with search rival Google. As per the agreement, Google will pay Yahoo a share of the gross revenues from AdSense for Search service ads displayed on Yahoo Properties or Affiliate Sites, and Yahoo will pay Google fees for requests for image search results or web algorithmic search results. The deal came into effect this month and will last for three years. The deal will be subject to review by anti-trust authorities including the US Department of Justice. Post the deal, Yahoo will continue to send 51% of their search traffic to Microsoft’s Bing and use their own search products as well. According to analysts, if Yahoo sent all the remaining traffic to Google, it could boost search revenue by about $200 million-$400 million a year.

Continuing with their content improvement objective, Yahoo launched two new lifestyle-focused digital magazines Yahoo Real Estate and Yahoo Celebrity. They also introduced Yahoo News Live with Katie Couric and the Yahoo News Team, a daily live stream that helps deliver latest biggest stories in the news. Within sports, their fantasy broadcast series Fantasy Football Live provided leading expert analysis and up-to-the-minute injury reports to help fantasy players set rosters and win their leagues.

Despite these moves, the market appears to be losing its patience. Their stock is currently trading at $31.12 with a market capitalization of $29.3 billion. It had reached a 52-week high of $52.62 in November last year and a 52-week low of $27.20 last month.

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