Kara Swisher

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Core Issues: Yahoo Beats Earnings Expectations in Q1 on Continued Flat Revenue

Core_poster

Yahoo reported a solid earnings surprise in its first quarter report today, garnering 35 cents a share compared to 24 cents expected by analysts.

But, of more concern, revenues remained lower than expected, at $1.07 billion in the three months, compared to estimates of $1.1 billion or more. Those revenue improvement hopes were already very low — Wall Street had hoped for small two percent upside, which is well below by a major magnitude to the performance by its competitors such as Google and Facebook, which have seen robust revenue growth.

Yahoo shares were off 3.5 percent in after-hours trading, after the not-meeting-a-very-low- bar results.

One of the big problems was a major decline in its display advertising business, down 11 percent in the first quarter to $455 million, with the number of ads sold declining seven percent and the price per ad falling two percent.

As it did last quarter, search revenue did not save the day. It also declined 10 percent to $425 million, although it was up six percent when traffic acquisition costs were not counted in. While paid clicks were up 16 percent, price per click was down seven percent.

The basic story here? Yahoo CEO Marissa Mayer certainly runs a much tighter ship — via cost savings, lower taxes and some nifty accounting, likely due to the financial talents of CFO Ken Goldman — but still has yet to grow the Silicon Valley Internet’s main businesses, especially compared to rivals.

She has hoped to change that via a series of small acquisitions and a refurbishment of its core properties, such as Yahoo Mail and ita much trafficked homepage. But, so far, the results are not there — simply put, Yahoo is selling less than it should be.

That’s not going to get any better going forward in the short term, according to Yahoo guidance. The company said revenue for the second quarter will be from $1.06 billion to $1.09 billion with and EBITDA of $350 million to $370 million, compared to a consensus of $1.1 billion and $399 million.

One reason for the revenue issue is Yahoo’s lack of ad sales leadership since the departure of well-regarded ad exec Michael Barrett, who left months ago. Yahoo is trying to fix that and it now in the midst of a talent poach of AOL revenue chief Ned Brody, who still might not be able to work immediately due to a non-compete contract.

In addition, the jury is out on Yahoo’s nascent mobile business, which also lags far behind the market leaders. Yahoo has bought a number of small mobile startups to spur innovation in this critical area recently, so it might still be too early to see any substantive growth.

Still, due to former Yahoo CEO and co-founder Jerry Yang’s prescient investment in China’s Alibaba, the company’s stock has soared of late, due to massive stock buybacks paid for by the sale of some of its shares — totaling over $2.2 billion in this quarter and the last combined — and the remaining rising value of the remaining part of its asset there.

In addition, investor hopes are still high that Mayer can turn the company’s main business units around for real, instilling innovation that has lagged at the company for much too long.

Yahoo did not release any metrics about engagement improvements from some of her initial efforts, which Mayer might address on her conference call with analysts at 2 pm PT, which I will be liveblogging.

Until then, here is Yahoo’s official press release and its deck of financial info to peruse:

YHOO_News_2013_4_16_General

YHOO_Q113EarningsPresentationFINAL


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