Yahoo’s Core Business Still Shrinking, With Q4 Revenue Declines as Expected
With Wall Street looking for any signs of a resumption of revenue growth at the company after quarter after quarter of declines, Yahoo turned in Q4 result that everyone expected.
The company reported a six percent decline in revenue on a GAAP basis — two percent once traffic acquisition costs are removed — and a profit picture in line with estimates.
Wall Street was expecting Yahoo sales to dip 1.6 percent to just over $1.2 billion for the quarter. Revenue came in at $1.2 billion. There were hopes for an upside surprise in its non-GAAP earnings per share, estimated at 38 cents, which Yahoo delivers at 46 cents.
Worse still was Yahoo’s outlook for the first quarter, noting it expects non-GAAP profits of between $130 million and $170 million, which is very much below estimates. Revenue could be between $1.06 billion and $1.1 billion, ex-TAC, compared to expectations for $1.08 billion.
“I’m encouraged by Yahoo’s performance in Q4 and 2013 overall. We saw continued stability in the business, and our investments allowed us to bring beautiful products to our users and establish a strong foundation for revenue growth,” said Yahoo CEO Marissa Mayer in a statement.
What else could she say? Let me be clear — forget the profits, which can be easily moved hither and fro at Yahoo: It. Is. All. About. Growing. Revenue.
Simply put, while there have been some truly laudable efforts to improve products, it still is not being manifested in revenue growth. Display ads revenue dropped seven percent in the third quarter, while search sales ads went down eight percent.
Wall Street certainly understood the situation — that Yahoo’s core business continues to shrink under Mayer’s leadership — bidding down shares in after-hours trading by four percent. It had risen earlier today by about the same amount.
As I noted in the fall:
Look for Mayer to continue to claim that the company is still in turnaround — part of the people, then products and then profits map she has laid out. It’s essentially a down-is-the-way-up strategic vision, promising eventual payoffs from all the investments in talent, acquisitions and morale-boosting. And let’s not forget Logopalooza!
Mayer will also likely tout mobile growth, which she has recently said is about 350 million monthly users out of 800 million active uniques overall. She will clearly push the line that Yahoo is growing users, even if it can’t grow revenue and profits.
At CES, among other things, Mayer talked about improved ad technology efforts, which seem to have not worked quite yet.
The analyst estimates for 2014 are calling for overall revenue growth of about five percent, which would be weak if measured against competitors. But, for Yahoo, that would be a blockbuster.
The stock market does not care since Yahoo owns 24 percent of China’s fantastically performing Alibaba Group, which is keeping CEO Marissa Mayer in piles of cash.
Another plus from Alibaba, as noted in a piece by Amir Efrati today in The Information:
Royalties that Alibaba paid to Yahoo for continuing to use the Web brand’s name on some Chinese websites, among other things, also made Yahoo’s deteriorating core business seem healthier than it was.
Without the royalties, Yahoo would have reported a 4.2% drop in revenue in the third quarter of 2013, excluding commissions paid to Yahoo’s partners. That’s worse than the 1% drop it actually reported, including the royalties.
The royalties are pure profit, so Yahoo’s net income would have been 11% lower without them during the first three quarters of 2013.
Some specifics of the revenue issue at Yahoo, as it noted:
GAAP display revenue was $553 million for the fourth quarter of 2013, a six percent decrease compared to $591 million for the fourth quarter of 2012.
Display revenue ex-TAC was $491 million for the fourth quarter of 2013, a six percent decrease compared to $520 million for the fourth quarter of 2012.
GAAP search revenue was $464 million for the fourth quarter of 2013, a four percent decrease compared to $482 million for the fourth quarter of 2012.
Search revenue ex-TAC was $461 million for the fourth quarter of 2013, an eight percent increase compared to $427 million for the fourth quarter of 2012.
Yahoo said the number of ads sold and paid clicks were up, but prices for both were down.
Much of the falloff is sure to be blamed on former COO Henrique De Castro, whom Mayer fired recently. He was leading revenue efforts for the company, while Mayer has focused on product and other more flashy things.
It will be interesting to see how Mayer deals with the departure on a conference video show at 2 pm PT, which she stars in with CFO Ken Goldman. Especially controversial has been the large payout De Castro got from Mayer for 15 months of, well, this kind of result.