Show Me the Plan: Despite Alibaba Stock Boost, Wall Street Looking for Q1 Signs That Yahoo’s Mayer Is Improving Core Business
There’s no question that Yahoo’s stock has been on a tear of late, rising 55 percent since Yahoo CEO Marissa Mayer has been leading the Silicon Valley Internet giant, with shares reaching five-year highs.
But, as Wall Street analysts and many in the tech sector have noted, much of the lift has been attributed to several billion dollars in buybacks of its stock, paid for by its sales of shares in China’s Alibaba Group, the fast-rising value of its large remaining holdings there and even a deft bit of currency trading in the Japanese yen (Thanks, Dan Loeb!).
That’s certainly all made Yahoo a clever financial player. But it remains an Internet business and now some investors are looking to see if the company can lift the prospects of its actual search and advertising units beyond Mayer’s enthusiastic promises to improve those core businesses.
As Wedge Partners Martin Pyykkonen wrote recently, in a common sentiment:
“During Marissa Mayer’s nine months as YHOO’s CEO we’ve heard what seem to be a lot of promising ideas and points of focus — e.g., content personalization, home page revamp, mobile monetization, new/refreshed apps, etc. We’re now keenly interested in hearing a thorough and coherent strategy towards regenerating profitable (with at least stable EBITDA margin) revenue growth. While mobile monetization has been front and center for YHOO and the Internet advertising sector of late, we still need to see and hear a comprehensive strategy, which includes but is not overly focused on mobile traffic.”
The bar is low and, thus, Wall Street is not actually asking for that much improvement. That means if Yahoo can show only a few percent rise in revenue — compared to typically huge gains from other players like Google and Facebook — Mayer will look like a winner, following a similar stock improvement path pioneered by AOL CEO Tim Armstrong.
Currently, Wall Street estimates are for Yahoo to show a small two percent rise in annual revenue to $1.1 billion and 24 cents in earnings per share. But whisper EPS estimates range up to 29 cents.
The big hope for that rise is expected to come from search, an area that former Google exec Mayer knows well how to improve. In the last quarter, in fact, increases in search made up for the continued lackluster performance in Yahoo’s display advertising business, which has been facing increasingly brutal competition from Google and Facebook in the sector.
Whether Mayer can wring more improvements in search revenues — representing 40 percent of its sales — especially as tensions have been escalating between Yahoo and its search technology partner Microsoft, will be interesting. According to sources, as I have previously reported, both sides have been exploring ways to extricate themselves from the deal, which has not yielded the promised results over the years, by summer.
And any improvements in display should cheer investors, who are hoping for flat or slightly down results. Mayer has recently made a big move to goose results in that area, with an effort to poach AOL sales chief Ned Brody to take over its important Americas unit, a talent raid that remains in flux due to potential non-compete issues.
Also of interest will be if Yahoo can manage to eke out improvements in engagement due to recent refreshes of its homepage and mail offerings, as well as any upward trends in its tiny mobile business. Yahoo has bought a number of small mobile startups to spur innovation in this critical area, so it might be too early to see any substantive growth. Under Mayer, the company has cut back on releasing specific metrics in a wide range of areas of its business, so any insights unveiled should be much chewed over.
In other words, it’s clear Alibaba is killing it, much to Yahoo’s benefit, with its share having a current value of about $14 billion. Now, can Mayer do the same for Yahoo itself?