The tech giant better known as the search engine giant, Yahoo! (YHOO, Financial), reported its first quarter earnings on April 21 after the bell and highly depressed the sentiments in the market as its top and bottom line failed to meet the Street estimates. In fact, analysts are questioning when Yahoo! will show better profits during the transformation process that has been highlighted by their CEO, Marissa Mayer, during the earnings call. The stock reacted negatively by dropping about 1.5% in the after-hours trading soon after the announcement that both the revenue and profit failed to pacify the analysts and has fallen far below what the company had posted a year ago. Let’s quickly decipher the main takeaways from the first quarter earnings report of Yahoo.
A disappointing quarter in overall
The first quarter adjusted earnings came in at $0.15 per share while revenue for the quarter stood at $1.04 billion. Both the top line and bottom line failed to meet the analyst expectations that were hooked to earnings of $0.18 per share and revenue of $1.06 billion. The earnings saw a plunge close to 60% when compared to the same quarter a year ago when the company had posted earnings of $0.38 a share.
The revenue drag was mainly attributed to the fall in display advertising revenue which remains an area of focus for the company. Revenue from the display advertising segment fell about 7% year-over-year to $381 million. The price-per-ad fell about 17% compared to the same period in 2014. However the two major bright spots for the tech giant were the search engine segment and the mobile segment which showed growth in revenue during the quarter. The search engine revenue grew 20% year over year to $956 million mainly driven by the partnership with Mozilla which has been termed as a “high quality” deal by Mayer.
Mobile user growth also saw sizable gains with the company’s growth in mobile monthly active users by over 20% year over year in the first quarter, which reflected the commitment of Yahoo! to be “mobile-first” promoting tech company.
However, the display advertising section’s dismal performance offset all the revenue gains witnessed in the other segments.
Here’s what the management had to say
Mayer stated during the earnings call, “Yahoo! is amidst a multi-year transformation to return an iconic company to greatness…” She also revealed that, on the product side, Yahoo was working upon a fantasy sports product that it would be launching this summer. During the earnings call CFO, Ken Goldman shared that the company was still on target for the fourth quarter spin-off of the Alibaba (BABA, Financial) shares. However, this adds to investors’ concerns as they are worried on how the company will continue to generate revenue once it spins off the 15% stake in Alibaba.
Mayer has emphasized on the partnership with Mozilla which has led to improvement of search traffic during the quarter. She has also highlighted upon a re-negotiated contract with Microsoft (MSFT, Financial) which could be the potential area for growth. In April, a series of headlines about the company’s 10-year search partnership with Microsoft’s Bing was a hot topic of discussion.
Nevertheless, Yahoo has stated that it expects its second quarter revenue to be between $1.01-$1.05 billion. The guidance midpoint is, however, below the analyst consensus estimate of $1.04 billion.
Final word
Yahoo!’s first quarter has been a dismal one and investors are showing concern about the future prospects of the company. Though the management remains upbeat on the transformation of Yahoo! investors have started questioning when they could begin to see a “Marissa premium” built into the stock of Yahoo. Well, the answer to this will need to be left to time which will be the best judge on how the current CEO is able to transform the company and take it to a new high in the days ahead.
