Yahoo buys more time for turnaround with solid 2014 earnings report

Yahoo, the Silicon Valley tech giant that has been under pressure to show it can compete with aggressive rivals like Google, has bought more time for its turnaround with solid earnings and an 84% rise in income.

The company said on Tuesday that it made $186m in income from operations in the first three months of the year – a big jump from only $30m at the same time last year. CEO Marissa Mayer said the company had moved past its period of decline and into growth.

“While we believe the type of growth we’d like to see will take multiple years, this is a good start,” said Mayer on the company’s earnings webcast.

While revenue for all of Yahoo dropped 1% to $1.13bn, the tech company’s investment in China’s Alibaba Group continued to pay off. Alibaba’s revenues jumped 66% to $3.06bn, and its net income soared 110% to $1.4bn.

Yahoo holds a 21% stake in e-commerce site, which has been a cash cow. The benefits of that, however, are likely to fade later this year as Alibaba goes public and Yahoo has to find another way to grow revenues. On the webcast, chief financial officer Ken Goldman said international markets will be an important source of growth for the company.

Investors have been curious to see whether CEO Marissa Mayer can effect a turnaround as the company competes with Google and others on search traffic, display ads and video.

Yahoo’s display revenue rose 2% to $409m and search revenue grew even more, by 9% to $444m.

Tuesday's earnings show Yahoo crossed into 2014 with something to show for it – though investors and analysts are divided about the company’s overall strategy under Mayer, who joined the company in 2012 after 13 years at Google.

Mayer said last year her priorities for the company were, in order, people, products, traffic and lastly, revenue. In a sales pitch to bring on talent from other tech companies in competitive Silicon Valley, Mayer boasted last year that Yahoo attracted 12,000 resumes a week from job-seekers.

Analysts have tried to puzzle out the company’s strategy, which has been pointed in several different directions, from search to advertising to video. Mayer said on Tuesday that the availability and compatibility of Yahoo on smartphones is key to the company as well, declaring “mobile pivotal to our future growth”. She said the company more than doubled its mobile team and grew mobile users by 30% to 430 million people.

“I would put mobile as one of the key, maybe even the most important of the four businesses to our overall growth,” said Mayer, citing native advertising, social and video as the company’s other sources of growth.

Mayer also alerted investors that Yahoo is interested in creating more original web videos – some original with partners. The company has created 70 original shows, Mayer said. Yahoo, in its quest to compete in video, will be up against giants like Netflix and Amazon.

Yahoo is also focusing on information security, hiring a new chief for the effort in the wake of widespread tech-industry concerns about hacking. “If we offer our users greater security for our products, they will use them more,” Goldman said.

Cantor Fitzgerald analyst Youssef Squali said before earnings were announced that “2013 represented a year of right-sizing, investment and acquisition” for the company, which would indicate that 2014 is the year that Mayer and her team deliver growth.

Of the 38 analysts who follow the company, 19 have a buy rating, which shows enthusiasm about Yahoo’s chances, and 18 recommend “hold”, a neutral judgment that is neither positive nor negative. There is a single “sell” rating.

Yahoo’s stock has been one of the notable casualties in some weakness in the tech industry, dropping 17% over the course of the year. The company has been buying back its own shares to boost the price.

“We have reduced the number of shares we have and we think that has been a very good use of our cash,” Goldman told analysts today.

In the first three months of the year, Yahoo bought back 12m shares for $450m. That brings the tally of buybacks to $6bn since the beginning of 2012, according to Goldman. Mayer joined the company in July 2012.

Powered by article was written by Heidi Moore in New York, for on Tuesday 15th April 2014 22.12 Europe/London © Guardian News and Media Limited 2010