“No fireworks here,” said Colin Gillis an analyst with BGC Financial. “It was a lackluster quarter.”
The company made no mention of a new strategic direction in what was the first earnings announcement under Scott Thompson, Yahoo’s new chief executive. The announcement was timed just three weeks into Mr. Thompson’s term as chief executive and one week after Yahoo’s co-founder, Jerry Yang, stepped down from the board.
It also occurred as Yahoo’s board underwent a strategic review that began in September that includes selling its Asian assets.
But the company made no mention of the deal in its earnings call with analysts. “The work is ongoing,” Mr. Thompson said in the conference call. “I believe there is big potential at Yahoo, much bigger than the outside world envisions today.”
Yahoo increased its operating income 10 percent from the same quarter a year ago, but reported declining revenue and profit for the second consecutive quarter. The company’s net income in the fourth quarter dropped 5 percent, to $296 million, or 24 cents a share, from the year-ago quarter. Revenue fell 3 percent, to $1.17 billion, excluding commissions paid to Yahoo’s partners. Wall Street analysts had expected 24 cents a share, but slightly higher revenue of $1.19 million, according to a survey of analysts by Zacks Investment Research.
The company has been trying to cut costs and build on its strength in online editorial content. With 702 million monthly users, Yahoo remains the most trafficked news site online. But, as Mr. Thompson acknowledged Tuesday, “the sheer number of users will not get us to where we need to be. We need to improve the quality of customer experiences.”
To that end, the company announced a partnership with ABC to feature ABC News content on the Yahoo home page in October. But the biggest element of that turnaround effort, Yahoo’s display advertising business, fell 4 percent, to $546 million, compared with the same quarter a year ago. Meanwhile, the overall market for display advertising in the United States grew 23.5 percent, to $9.2 billion last quarter, according to eMarketer.
Display advertising had traditionally been one of the company’s bright spots, but Yahoo continues to lose share to Facebook and Google. Yahoo’s share of the online ad market declined 11 percent last year, down from 13.3 percent in 2010. While Google’s share grew to 40.8 percent, from 38.5 percent, and Facebook’s share reached 6.4 percent, from 4.6 percent for the same period, according to eMarketer.
“Getting our display advertising business on the right course is what I spend all my waking moments thinking about,” Mr. Thompson said in the call, though he did not offer any specifics.
Yahoo’s search business also contracted for the quarter. It is operated by Microsoft under an agreement that extends to March 2013. Revenue from search, after payments to Microsoft and others, fell 3 percent, to $376 million.
Mr. Thompson hinted that much of the company’s future innovation might come from the wealth of data it has on its 702 million users.
“The data is very, very impressive,” he said. “If you believe data and great technology and great technologists can begin to predict what’s in a user’s mind, having that data to start from is a huge advantage. You’ll see some interesting, data-oriented experiences coming out sooner versus later.”
Yahoo’s board has faced mounting pressure from activist investors, like Daniel Loeb of Third Point, to unlock shareholder value. The board had initially considered selling a minority stake to private equity suitors. It is now leaning toward a tax-efficient sale of its Asian assets to refocus on its core media assets in the United States where it has long suffered from declining revenue and an exodus of senior sales employees. Yahoo owns a 40 percent stake in Alibaba and a 35 percent stake in Yahoo Japan, valued at approximately $17 billion. Yahoo’s total market value is only slightly bigger at $19.5 billion.
The company is looking to sell its interests in Alibaba and Yahoo Japan in a complicated “cash-rich split” tax deal in which these companies would buy some other operating businesses and trade them to Yahoo in exchange for their own stock.
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