Yahoo reports difficult Q4

Yahoo struggled selling both display and search advertising in the fourth quarter, as its revenue and net income both dropped year-on-year.

Subtracting the commissions paid to partners, Yahoo’s revenue fell 3% to $1.17 billion in the quarter ended 31 December, missing the $1.19 billion consensus estimate from analysts polled by Thomson Reuters. Gross revenue dropped 13% to $1.32 billion.

Net income fell 5% to $296 million, although earnings per share were flat at $0.24, matching analysts’ consensus estimate.

Scott Thompson (pictured), the former PayPal president who was recently appointed Yahoo CEO, put a positive spin on the results during a call with press and analysts. "The company made progress in the quarter," he said, offering as evidence a 10% increase in operating income.

"However, there’s "no question" that Yahoo needs to do better," he said. "We need better execution to accelerate time to market and to better monetise the [user] engagement we have."

Thompson, named CEO just three weeks ago, said it was too early to talk about specific changes he plans to make, but said Yahoo will pursue new "revenue streams" and focus on bringing "balance" and improvement to key areas of the business, including Yahoo’s relationship with end users and advertisers; its ability to make decisions quickly based on data analysis; and the way it invests in current and long-term products.

"We need to innovate and disrupt," he said.

CFO Tim Morse said Yahoo is in discussions to restructure its participation in Yahoo Japan and in China’s Alibaba Group, but declined to give details.

For the full fiscal year, revenue came in at $5 billion, down 21% compared with 2010. Subtracting partner commissions, revenue was $4.4 billion, down 5%. Revenue for the full year was impacted in part by Yahoo’s search advertising partnership with Microsoft, in which Yahoo pays Microsoft a commission on search ad sales and which includes a change in how Yahoo reports search ad revenue, the company said.

On display

Advertising sales dropped across the board during the quarter for Yahoo. Subtracting commissions, display ad revenue fell 4%, while search ad revenue dropped 3%. Gross revenue fell 4 percent for display ads and 27% for search ads.

Yahoo’s online ad sales performance contrasts with the overall market, which has been growing this year. For example, in the US in the third quarter, online ad revenue grew 22%, according to the Interactive Advertising Bureau.

By comparison, Google, which makes most of its money from online ads as well, increased its revenue 25% in the fourth quarter.

For the full fiscal year, Yahoo’s profit also fell, with net income shrinking from $1.23 billion, or $0.90 per share, to $1.05 billion, or $0.82 per share.

One of Thompson’s biggest priorities is making sure Yahoo’s core business – display advertising – returns to growth. An unexpected drop in display ad sales is believed to have played a major part in the board’s decision to dismiss Bartz, who had been CEO since January 2009. Sales suffered after a major reorganisation of the display ad sales team led to higher-than-expected turnover.

Unique visitors to Yahoo properties and Yahoo-branded sites increased 12%. Page views fell 13% in communications and communities products, like Yahoo Mail, but minutes shot up 32%.

In media sites, like Yahoo News, page views and minutes grew 7% and 8%, respectively. Search engine page views and queries both fell 4%.

Looking ahead, Yahoo expects revenue minus commissions to be $1.03 billion to $1.11 billion in 2012’s first quarter, and gross revenue to be between $1.2 billion and $1.26 billion.

IDG News Service

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