May 27, 2024

Income Slips For Yahoo, But Ads Show Some Promise

SAN FRANCISCO — Carol A. Bartz, Yahoo’s chief executive, still has work ahead to lift her company out of its slump.

That reality was underscored on Tuesday when Yahoo reported its first-quarter earnings, which showed promising signs in the company’s main business — display advertising — but troubles in search. The mixed results do little to appease critics of Ms. Bartz’s turnaround plan, which she put in place soon after joining Yahoo two years ago.

Ms. Bartz is trying cut costs and build on the company’s strength in online editorial content. But it continues to trail faster-growing rivals like Google and Facebook.

The center of her turnaround effort, Yahoo’s display advertising business, grew 10 percent, to $471 million, compared with the quarter a year ago. The sector, which includes banner ads, is one of the company’s bright spots.

On a conference call with analysts, Ms. Bartz said Yahoo was making “tangible progress,” and that “over all, our turnaround is proceeding on schedule.” She cited higher traffic to a number of Yahoo’s media properties like its news blogs, and its coverage of the Academy Awards.

But Yahoo’s other businesses contracted, particularly search, which is operated by Microsoft through a partnership. Revenue from search, after payments to Microsoft and others, fell 19 percent, to $357 million.

Ms. Bartz acknowledged in the call that the Microsoft partnership, a prominent deal when it was announced two years ago, has not met expectations. Technical complications have made the revenue the two partners collect per search decline since their search engines were combined.

Still, Yahoo said it would receive a guaranteed minimum payment from Microsoft for the next year in the United States, regardless of how search advertising performs. After that, the payments may decline if the problems are not fixed. “We are working very close with Microsoft on these issues,” Ms. Bartz said.

Yahoo’s net income in the quarter fell 28 percent, to $223 million, or 17 cents a share, compared with $312 million, or 22 cents, in the year-ago quarter. The comparison is complicated by the sale last year of Zimbra, an e-mail company, which had lifted Yahoo’s 2010 first-quarter profit.

Yahoo said revenue in the quarter fell 24 percent, to $1.21 billion, from $1.6 billion. Selling and discontinuing some products as well as outsourcing search businesses to Microsoft contributed to the decline.

Excluding commissions paid to advertising partners, revenue was $1.06 billion, matching what analysts had expected.

For its part, Google reported a 27 percent increase in first-quarter revenue.

Yahoo is losing ground in online ad spending. Its share is expected to drop 1.5 percentage points to 11.9 percent this year, according to eMarketer.

Yun Kim, an analyst with Gleacher Company, said he was happy Yahoo at least matched expectations and did not issue a disappointing forecast. There may be a lot of focus on Yahoo’s troubles with search, he said, but its future depends on its ability to entice advertisers into long-term deals for display ads.

“There’s still a lot of work to be done there,” Mr. Kim said. “The inflection point whether they are going to make things happen will come in the second half of the year.”

A major area of concern is the Americas, Yahoo’s biggest source of revenue, Mr. Kim said. Revenue in the region excluding payments to partners has declined for nearly two and half years, and that erosion accelerated in the first quarter, to 11 percent, compared with single digits in recent quarters, he said.

Ms. Bartz, who has laid off hundreds of employees and ended several products that failed to catch on, has kept operational expenses in check. They fell 8 percent, to $647 million.

Last week, investors punished Google for letting operational expenses grow 55 percent in the first quarter, from newly hired employees and salary increases for its entire work force.

Shares of Yahoo rose 1.7 percent, to $16.40, in after-hours trading on Tuesday after its results beat the low expectations set by analysts. During regular trading, shares fell 1.4 percent, to $16.12.

For the second quarter, Yahoo said it expected that revenue excluding payments to advertising partners would be $1.075 billion to $1.125 billion. Income excluding certain items is expected to be $160 million to $190 million.

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