Yahoo Earnings Beat Estimates, But Core Problems Remain

Seth Fiegerman2013-04-16 20:49:16 UTC

Yahoo's profits in the first quarter beat Wall Street estimates, but the company's core advertising business still appears to be heading in the wrong direction.

Yahoo reported earnings-per-share of $0.38 on revenue of $1.07 billion for the March quarter, beating the consensus estimate for earnings of $0.24 per share, but coming in below the $1.1 billion in revenue that analysts had expected. The stock declined by as much as 4% in after hours trading following the earnings release.

Search revenue increased by 6% from the same quarter a year ago to $384 million, but that wasn't enough to offset falling advertising revenues. Display revenues were particularly disappointing, declining by 11% year-over-year to $402 million, and price-per-click decreased 7%. Yahoo's $1.1 billion in revenue was down from $1.22 billion in the March quarter of 2012.

The earnings report confirms that Yahoo and its new CEO Marissa Mayer are making headway on search, but have yet to figure out how to staunch the bleeding from display revenue, which is a key part of the business.

In a statement, Mayer emphasized that Yahoo's business is stabilizing and her team is taking steps for long-term growth. "We saw continued stability in our business, strengthened our team, and started the year with fast execution against our products and partnerships," Mayer said. "We are moving quickly to roll out beautifully designed, more intuitive experiences for our users. I’m confident that the improvements we’re making to our products will set up the Company for long-term growth."

YHOO data by YCharts

Mayer, who joined Yahoo from Google in July, has attempted to change the company's culture by initiating regular town hall meetings and free food — common at other Silicon Valley companies — and by forcing all employees to report in to the office rather than working from home. Mayer has also acquired six startups including Stamped, Jybe and OnTheAir to bring engineering talent to Yahoo and build up its mobile team.

Some of these moves have generated a fair amount of criticism, including the work-from-home decision, Mayer's determination to personally approve every new hire and Yahoo's recent $30 million acquisition of Summly, a mobile news startup run by a 17-year old. Even so, investors have remained confident in Mayer and the stock has generally continued on an upward trajectory.

Yahoo's stock has been hovering just below $25 in recent days, its highest level in nearly five years and an increase of about 50% from where it was six months ago, as investors have shown renewed optimism in the company and Mayer's leadership.

Image via Getty, Justin Sullivan

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