Yahoo signs ad pact with Google; earnings and revenue miss

21 Oct 2015 | Author: | No comments yet »

Yahoo and Google sign advertising pact.

SAN FRANCISCO: Yahoo! chief executive Marissa Mayer said the struggling Internet pioneer will see a new, narrower focus – and a partnership with rival Google – following a disappointing quarter.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.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. The company on Tuesday reported its biggest quarterly sales drop since 2009 and gave a fourth-quarter revenue forecast that missed analysts’ estimates.

Yahoo, whose shares were down 1.6 per cent 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. Yahoo also said the planned spinoff of its stake in Chinese e-commerce company Alibaba Group Holding Ltd. may not be completed until January, later than a prior target of year’s end. Yahoo said it expected fourth-quarter revenue of USD 1.16 billion–USD 1.20 billion, well below the average analyst estimate of USD 1.33 billion, according to Thomson Reuters. “We are also experiencing continued revenue headwinds in our core (advertising) business, especially in the legacy portions,” Mayer said on a call with analysts.

Mayer has been chasing sales growth by adding services for smartphones and tablets, new tools for advertisers and premium content to attract audiences and marketers. She also said that another key priority is spinning off the Yahoo! stake in Alibaba, though there are uncertainties about how US tax authorities will treat the deal. Yet Yahoo has failed to hold onto advertising market share in key areas such as mobile, where rivals such as Facebook Inc. and Google Inc. have gained ground.

Yahoo earlier this year sought a private letter ruling from the Internal Revenue Service to confirm whether the transaction, worth about USD 27 billion currently, would result in a tax obligation. 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.

Under the deal, which follows a similar arrangement with Microsoft’s Bing search engine, Google will pay Yahoo! a percentage of the revenues from ads on Yahoo! and affiliated sites. 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. Google’s search engine, though, still processes about two out of every three search requests in the U.S., roughly the same volume as it did when the Justice Department originally objected to a Yahoo partnership. On the bright side, revenue from “Mavens” — a metric Mayer introduced to track mobile, video, native and social ads — rose 43 percent to $422 million.

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. Google’s offerings on desktops and smartphones will complement the search services provided by Microsoft Corp., which remains a strong partner, as well as Yahoo’s own search technologies and ad products, the company said. On Tuesday, Yahoo projected fourth-quarter sales, excluding revenue shared with partner websites, of $920 million to $960 million, short of analysts’ average prediction of $1.08 billion. Traffic acquisition costs, the amount Yahoo spends to attract users to its websites, jumped to USD 223 million in the quarter from USD 54 million a year earlier.

Investors are now focused on the fate of Yahoo’s plan to place its remaining Alibaba holdings — 384 million shares currently worth about $28 billion — into a new company called Aabaco Holdings. Mayer also has lost several executives, including Jacqueline Reses, Yahoo’s chief development officer, who had shifted her focus this year to the Alibaba share sale. Despite that setback, Yahoo Inc. is still planning to complete the spin-off by next year with the expectation that it will qualify as a tax-free maneuver. In addition, the Web portal is letting people turn off the requirement to enter a password, and instead giving them the option to verify their identity via the application.

Still, some analysts doubt these initiatives will be enough to reverse the company’s trajectory. “She’s focused on product, but nothing material has come of it,” said Sameet Sinha, an analyst at B.

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