Yahoo remains a work in progress

Earnings and guidance disappoint investors, but CEO Marissa Mayer says it will take time for growth to ratchet up. Shares are holding up.

By Charley Blaine Apr 17, 2013 1:43PM
© Peter Kramer/NBC/NBC NewsWire via Getty ImagesLet us take a charitable view of Yahoo (YHOO). The company's first-quarter results weren't terribly impressive, and the second-quarter guidance was a disappointment.

But investors -- for today, anyway -- weren't buying into the theory that the honeymoon is over for CEO Marissa Mayer, who joined the company a year ago.

The stock was down 8 cents to $23.71 on Wednesday. But a loss of less than 0.5% or so is nothing compared Wednesday's crummy stock market or, for that matter, with Tuesday evening when the shares fell as much as 5% after the company released its earnings. And it is still up 20.5% for the year and 51% since Mayer became CEO on July 16, 2012.

That said, Yahoo under Mayer remains a work in progress. And you can see that in Yahoo's second-quarter guidance. Yahoo expects revenue of $1.06 billion to $1.09 billion in the quarter after traffic acquisition costs -- that is, payments to all its advertising partners. The consensus estimate was $1.11 billion.
It expects earnings before interest, depreciation and taxes of $350 million to $370 million, a touch lower than a year ago.

At the same time, Yahoo reported a 10% decline in search revenue to $425 million and an 11% drop in display advertising revenue to $455 million in the first quarter. The declines startled some analysts.

Overall, Yahoo earned 38 cents a share before one-time charges on revenue of $1.07 billion. A year ago, it earned 27 cents a share on revenue of $1.08 billion. Free cash-flow was $150 million, down from $195.8 billion.

But Mayer insisted on the company's conference call that the issue is timing. The payoff is coming but will take a few years. Yahoo has spent the last year stabilizing the ship, including getting the right personnel into the right jobs. It has fixed a number of problems, including redesigning its home page and its email service.

The company expects to continue to focus on optimizing its mobile offerings. "Mobile is not only at the center of our users' daily habit," Mayer said. "It is the center of a huge industry shift in Internet access." She noted that more than 1 billion people access the Internet with smart phones, and tablet usage is growing faster than smart phones.

Still, Mayer's push to revamp the Yahoo home page and e-mail haven't reversed the decline in display-ad sales, an area where Google (GOOG) and Facebook (FB) continue to gain ground.

"Her approach may be right for the long term, but it's going to look pretty messy for the next little while," Brian Wieser, an analyst at Pivotal Research Group in Portland, Ore., told Bloomberg News. He rates the shares a "hold."  

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