Yahoo’s Turnaround Woes Mount

21 Oct 2015 | Author: | No comments yet »

Yahoo Loses $42M on ‘Community,’ Other Originals.

Yahoo Inc said on Tuesday it had signed a search advertising deal with Google Inc, providing a potential boost to Marissa Mayer’s efforts to turn around the company, which also reported revenue and profit that fell short of market estimates. With revenue after fees paid to partner Web sites falling to $1 billion, Mayer announced on Tuesday a search-ad agreement with Google to augment an existing deal with Microsoft.The company took a $42 million write-down in its video division during the third quarter, CFO Ken Goldman revealed on the company’s third quarter earnings call.SAN FRANCISCO — Unable to revive Yahoo’s revenue growth on her own, chief executive Marissa Mayer is hoping for a little help from her old friends at Google.

Amid Yahoo’s disappointing earnings, CEO Marissa Mayer unveiled another piece of bad news: the proposed spinoff of its massive stake in Chinese e-commerce juggernaut Alibaba is likely delayed. He later explained that Community, Sin City Saints and Other Space were to blame, noting that Yahoo “couldn’t see a way to make money over time.” Yahoo had dabbled in original video in the past with short-form series like The Bachelor spoof Burning Love. Mayer, a top Google executive until she defected to Yahoo in 2012, said the two companies had reached a three-year deal to work together in Internet search and advertising. Yahoo, whose shares were down 1.6 percent in after-hours trading, said the companies have agreed to delay implementation of the deal in the United States to allow the antitrust division of the Department of Justice to review it. But under CMO Kathy Savitt, the company pushed to compete with streamers like Netflix and Amazon by buying a small slate of original TV-length series anchored by Community.

Yahoo said it expected fourth-quarter revenue of $1.16 billion–$1.20 billion, well below the average analyst estimate of $1.33 billion, according to Thomson Reuters I/B/E/S. “We are also experiencing continued revenue headwinds in our core (advertising) business, especially in the legacy portions,” Mayer said on a call with analysts. Savitt was key to bringing the Dan Harmon comedy to Yahoo after it was canceled by NBC last year, convincing Harmon and Sony that Yahoo was the right home for the show, which Hulu had also explored buying.

The ongoing erosion has magnified worries that the Internet company will be stuck in a financial sinkhole after spinning off its lucrative stake in China’s Alibaba Group. Yahoo earlier this year sought a private letter ruling from the Internal Revenue Service to confirm whether the transaction, worth about $27 billion currently, would result in a tax obligation. In August, Community star Joel McHale revealed that his show would not be returning for a second season on Yahoo because the actors’ contracts were up. “All the actors on the show, almost without exception — their stock has risen significantly, and it’s out of the pay rate that is affordable to make the show,” he said during an interview. “So you’re not going to be able to get Alison Brie or Gillian Jacobs at a normal television salary anymore. Yahoo!’s profits in the September quarter plunged 99 percent to $76 million, or 8 cents per share, although the drop reflected a tough comparison with the year-ago sale of a big chunk of Alibaba shares. Her investments in high-profile content, including rights to live stream a coming NFL game, and development of a suite of new mobile apps, have so far failed to attract enough ad dollars to grow the business.

Apart from the Google deal, the only other good news came results came from Yahoo’s emerging businesses, which Mayer calls Mavens – mobile, video, native and social advertising. In early September, the web portal revealed that the IRS has declined to rule on the spinout’s tax free status, signaling that the government may be leaning against approving the strategy. It may be easier to gain the government’s approval this time because Yahoo’s share of the Internet search market has shrunk during the past seven years.

On the earnings call Tuesday, Mayer said that Yahoo’s board needs more time to give its final approval as does the Securities and Exchange Commission. Traffic acquisition costs, the amount Yahoo spends to attract users to its websites, jumped to $223 million in the quarter from $54 million a year earlier. While awaiting clearance to team up with Yahoo, Mayer is pledging to trim the company’s expenses as revenue declines, and concentrate the remaining workforce on fewer products. ‘‘We see a unique moment and opportunity for Yahoo as we move into 2016 to narrow our strategy and focus on fewer products with higher quality to achieve better growth and better results,’’ Mayer said during a review of the third-quarter results. The company said it has written off $42 million in expenses for its development of three video series, including a one-season revival of the popular “Community” show.

Google will pay Yahoo a percentage of the gross revenues from ads displayed on Yahoo, with the percentage varying depending on where the ads are displayed. The agreement, which will be reviewed by the Justice Department, comes after Yahoo in April amended the terms of its search partnership with Microsoft Corp.

Two of her top deputies—marketing chief Kathy Savitt and former acquisitions head Jacqueline Reses—left the company in the recent weeks, raising concerns about morale inside the company. Mayer told analysts on Tuesday that recent leadership changes are “the result of careful planning,” and that “our leadership team today is unequivocally the strongest during my tenure.” Ms.

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