Yahoo is drinking the mobile Kool-Aid

But the new CEO's strategy will come in sips, not gulps.

By InvestorPlace Oct 23, 2012 1:22PM

Woman sitting on steps with smartphone copyright Image Source, Image Source, Getty ImagesBy Tom Taulli

iplogoYahoo (YHOO) yet again finds itself in the midst of a turnaround. And this time, the company is invoking one of the hottest buzzwords in Wall Street: mobile.

On Monday's third-quarter earnings conference call, new CEO Marissa Mayer, helming her first report at Yahoo, noted that the most intensive mobile applications involve checking weather, sport scores and stock quotes -- some of Yahoo's core Web products. 

However, the company has failed to leverage them for mobile. Consider that the company has created more than 70 apps for Apple's (AAPL) iOS and Google's (GOOG) Android operating system, confusing users in the process.

Mayer, understandably, wants to switch to a more coherent product strategy.

To do this, she recognizes Yahoo will have to get aggressive on hiring, with a goal of having about half the technical employees working on mobile projects -- an ambitious goal that would mark a big culture change at Yahoo.

Mayer also will need to deal with the talent war in Silicon Valley, as companies like Google, Facebook (FB), Groupon (GRPN) and Zynga (ZNGA) offer lucrative pay packages to retain top-notch employees. Many well-funded startups are adding to the pressure, too.

Do mobile engineers see Yahoo as an attractive option? Early on, it's tough to tell. 

Mayer -- a proven dot-com veteran who was critical to helping Google build its mega-search business and other important segments -- has brought excitement back to the company, but it'd be understandable if mobile engineers remain leery about the firm's long-term prospects.

The overall financial picture isn't too dire. Yahoo's third-quarter earnings came to $3.16 billion, or $2.64 per share, dwarfing the year-ago period's 23 cents per share. However, the bulk of that came on the sale of half its stake in Alibaba; adjusted earnings came to 35 cents per share, which still beat expectations of 26 cents per share. Revenues also grew 2% to $1.08 billion.

However, Yahoo's search business continues to lag. If it were not for Microsoft's (MSFT) guaranteed payments, the business would have suffered in the latest quarter. Yahoo also is feeling pressure on its display ad business, which saw zero growth. Google and Facebook continue to take away market share. (Microsoft owns and publishes Top Stocks, an MSN money site.)

What's more, the mobile industry is sill in its nascent stages, with many companies scrambling for a way to monetize traffic. Early winners have been local-focused plays, such as Yelp (YELP) and Trulia (TRLA), but Mayer says she has no plans to get into this market because of the high costs involved.

All in all, though, Mayer does have a sound strategy -- it will just take time to get results. It easily could take a couple years to hire the right engineers, build new apps and find the right business models.

This means that for now, while the cash brought in from the Alibaba deal will help Yahoo navigate the road, the stock might continue to meander.

In the meantime, investors get to nip at their fingernails thinking about Yahoo's track record with executing its turnaround goals.

Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

More from InvestorPlace

Oct 25, 2012 8:56AM

Get ready to have as many ads on your phone as tv.....ahy....


Maybe romney will spam your phone....

Which Romney will we see today on tv, the real one or the flip flopper ?????

For War against War, for women against women, for middleclass against middleclass, for coal against coal, for medical reform against medical reform.

A real shape shifter, a chameleon. America wake up to this guy he been an opportunist all his life !

Oct 23, 2012 2:24PM
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