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Yahoo Still Looks Promising After The Second Quarter Results

August 13, 2014 | About:

Nearly two years after Marissa Mayer took the helm at Yahoo (YHOO) in July 2012, the company’s turnaround seems still in progress. The California-based multinational giant posted its second-quarter earnings on July 15, and even the management was highly disappointed by the lackluster performance. Yahoo’s CEO commented soon after the earnings release –

“Our top priority is revenue growth and by that measure, we are not satisfied with our Q2 results. While several areas showed strength, their growth was offset by declines”.

The company did post more of a bad quarter with revenues of $1.08 billion that missed Bloomberg analysts’ average estimate of $1.09 billion and was down 4% from the year ago comparable period. The company’s core advertising revenues continued to remain dismal, disappointing the market. However, there are a few positives that could stimulate the company’s future growth. Let’s dig in deeper to find out what happened during the quarter and how Yahoo’s future still holds some promise.

The quarter’s number mix

A mixed trend was noticed in the revenue numbers posted during the quarter. While Yahoo Search grew 6% year over year on revenue excluding Traffic Acquisition Cost and 19% year over year in search click driven revenue, the display ad revenues declined by more than 7%.

The primary reason for the growth in the search ad revenue was the increase in ad volume and the improved price per click. For the display ad division, while the number of ads sold across Yahoo properties rose by 24%, the price per ad declined by 24% from prior year period due to the unfavorable shift in mix of premium ads to low cost ads. Hence, though the company continues to post premium display content on the site, such content is not really fancied by advertisers who continue to spend less on Yahoo properties. This becomes the main drag on the revenue generated from the display ads section.

However, a positive development was also noticed during the quarter -- the growth in Yahoo’s total mobile unique visitors count, which grew to more than 450 million. This exponential growth is important for a search engine like Yahoo since it has been observed that a bigger user base consumes more content across such search engines. The growth rate in the visitors’ count could ideally translate into higher page views across all Yahoo platforms, and help in improving revenue for both display ad and search ad divisions.

Unfortunately, the GAAP income from operations plunged 72% to $38 million at the end of this second quarter, compared with the year-ago period. However, the non-GAAP income from operations reported a 7% decline standing at $194 million for the second quarter, compared with $209 million reported a year ago.

New partners to boost growth

Yahoo has been intensifying its efforts to enter the online video space for considerably increasing its display ad revenue. Keeping such intentions in mind, Yahoo announced in early July the acquisition of RayV, a company that is engaged in mobile online video streaming. With this acquisition in place, Yahoo also hopes to improve its underlying technology infrastructure.

Besides this acquisition, Yahoo announced its partnership with Live Nation for streaming one live concert on a daily basis on Yahoo Screen portal which might become a rare win for the music fans. Soon after both announcements were out, Yahoo’s CEO commented –

“Yahoo is focused on growing video users and monthly streams, and while we're only getting started, we're very focused on this in 2014.”

These vital decisions taken by the management clearly hints at Yahoo’s continued focus on giving people more reasons to visit the website for driving its display ad revenue in a positive direction.

Also according to Forbes estimates, YouTube, which is similar to Yahoo Screen streaming video content, made around $3.7 billion net revenue in 2013 and would draw around $4.7 billion this year. If Yahoo’s plans after such acquisitions click, and it’s able to make even 10% of YouTube’s estimated revenue, the top line of the company could inflate by nearly $500 million at the end of the financial year.

Last word

Truly, Yahoo is struggling to pull up its revenue and profits which are presently in bad shape. The management would need to adopt productive strategies to sustain Yahoo’s growth in the near future. But with such acquisitions round the corner, the company seems poised to improve its growth momentum within the upcoming quarters. Let’s keep watching how these moves can positively affect the top and bottom line of the company.

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