Yahoo Forecasts Sales That Trail Some Estimates Amid Revamp

Jan 28, 2014 7:59 pm ET

(Updates with comment from CEO in ninth paragraph.)

Jan. 28 (Bloomberg) -- Yahoo! Inc. forecast first-quarter sales that fell short of some analysts’ estimates as Chief Executive Officer Marissa Mayer struggles to turn user growth at the Web portal into advertising dollars.

Sales, excluding revenue passed to partner sites, will be $1.06 billion to $1.1 billion in the current quarter, the Sunnyvale, California-based company said today in a statement. Analysts on average were projecting revenue of $1.09 billion, according to data compiled by Bloomberg.

Mayer, who left Google Inc. for Yahoo’s top job in July 2012, is struggling to revive growth amid competition from her former employer and Facebook Inc. The company’s U.S. digital ad business will expand by 4 percent this year, about one-third the rate of the industry, according to EMarketer Inc. Yahoo’s share price doubled last year, an increase mostly attributable to the company’s stake in Alibaba Group Holding Ltd.

“It’s a dismal outlook,” said Colin Gillis, an analyst at BGC Partners in New York, who rates the stock a hold. “There’s going to be more pressure to perform as the year progresses.”

Yahoo fell as much as 6.9 percent to $35.60 in extended trading after the report. The stock rose 4.3 percent to $38.22 at the close in New York.

The company holds a stake of about 24 percent in Alibaba, the Chinese e-commerce company that is considering an initial public offering.

Alibaba Earnings

Earnings from Yahoo’s equity interests, including its holdings in Alibaba and Yahoo Japan, rose to $222 million from $149 million in the fourth quarter last year. Alibaba’s revenue rose 51 percent to $1.78 billion during the three months ended September.

Yahoo said net income in the period increased 28 percent to $348.2 million, or 33 cents a share, from $272.3 million, or 23 cents, a year earlier, helped by a gain from the sale of patents. Net sales slipped to $1.2 billion from $1.22 billion a year ago, in line with analysts’ average estimate, according to data compiled by Bloomberg.

Mayer said during a conference call today that reaching a desirable level of growth will take years. To speed a recovery, Mayer said she’s boosted investments in engineering, shuttered underperforming services and focused on attracting users with more engaging products. She also made a risky bet by spending $1.1 billion last year on Tumblr Inc., a blogging site with little revenue.

“In 2013, we built a foundation for growth,” she said. “I’m very pleased with our progress.”

No Growth

In her first full year on the job, Mayer presided over a 0.9 percent decline in net revenue to $4.43 billion from $4.47 billion in 2012. Ken Goldman, Yahoo’s chief financial officer, said today that earnings before interest, taxes, depreciation and amortization, or Ebitda, will fall “modestly” this year.

“I think they still have some time before they can really start exhibiting some positive traction,” said Sameet Sinha, an analyst at B. Riley & Co. in San Francisco who has a buy rating on the stock and doesn’t own it.

Yahoo’s results follow a leadership shakeup. Mayer fired Chief Operating Officer Henrique de Castro, another former Google executive, earlier this month after tensions erupted between the two. During today’s conference call, Mayer said de Castro was not a “fit” for the company and added that she will not be replacing him, giving the CEO more direct access to leaders on the advertising team.

Direct Reports

In a memo to employees announcing de Castro’s departure, Mayer said some of the former COO’s lieutenants will report to her, including Ned Brody, head of the Americas region; Dawn Airey, senior vice president for Europe, Middle East and Africa; and Rose Tsou, senior vice president for Asia-Pacific.

Before de Castro left, Yahoo unveiled updated advertising features, including a service to help marketers better target audiences and a new ad exchange to give clients more tools to manage promotions on their websites.

The company also is pushing out a new lineup of products to help attract more visitors like a publication that targets consumer technology users and a channel called Yahoo Food, which features photos, recipes and trends in cuisine.

--Editors: Ari Levy, Pui-Wing Tam