Display Ad Revenue Continues to be a Challenge for Yahoo despite Profit Increase in Q1

By Ed Silverstein April 17, 2013

Yahoo is still struggling with its display advertising business – even though the company saw a 36-percent increase in profit during Q1.

The strong increase came in large part due to the performance of Alibaba Group Holding of China, an e-commerce company of which Yahoo owns 24 percent.

Also, Yahoo revenue during Q1 dropped 7 percent compared to 2012.  The amount was less than projected by Wall Street analysts.

The news about the ad revenue volume also presents a challenge for Yahoo CEO Marissa Mayer.

“Its biggest clients—advertising agencies—have become more vocal about their impatience with Ms. Mayer's management,” The Wall Street Journal reported on Tuesday.

In fact, Yahoo’s display ads during Q1 saw lower sales for the second consecutive quarter, Reuters reported. Display ad revenue during Q1 dropped 11 percent when comparing the recent quarter to the same time period in 2012.

"People were disappointed by the display advertising because that's Yahoo's key business," Sameet Sinha, an analyst at B. Riley Caris, explained in a statement to Reuters.

“Many Madison Avenue executives said their ad spending on Yahoo sites is the same or lower than it was a year ago while they wait for the company to capture interest amid stiffening online-ad competition from Internet companies including Facebook…and Google,” The Journal reported.

For instance, Adam Shlachter, who works at Digitas ad agency, told the source, “We don't know what the grand vision is” at Yahoo and how the company will "offer us new opportunities to reach people."

"If they're not going to be clear about their plans and why we should be paying attention, it opens the door to everybody else," he added.

Also, revenue for search-ads at Yahoo fell 10 percent in Q1 relative to 2012.

Another important financial indicator during Q1, net revenue, not including “fees shared with partner websites,” was $1.07 billion at Yahoo, Reuters said. That is about equal to the amount seen in Q1 during 2012.

Looking ahead, net revenue for Q2 is now projected to be in the range of between $1.06 billion and $1.09 billion, the company said. Reuters notes this amount is less than average predictions from analysts of $1.11 billion.

Earlier this year, EMarketer predicted Yahoo will have 8 percent of the U.S. display ad market during 2013 compared to 9 percent seen last year, TechZone360 reported. Facebook and Google will have higher market share in 2013 compared to Yahoo.

For increased revenue, Mayer is focusing on users spending increased time on Yahoo websites, and developing new offerings for mobile devices.

Still, The Journal wrote this week, Meyer “has so far provided little evidence of a turnaround for the Internet company.”

The financial news led to a 4.5-percent fall in Yahoo stock in after-hours trading to $22.73, news reports said.

Mayer, however, said in a recent conference call she was “encouraged by what I'm hearing from advertisers,” and that Yahoo is “making it easier for customers to do business with Yahoo,” The Journal reported.

Mayer will attract advertisers by a “chain reaction” starting with the hiring of more engineers “to improve Yahoo’s core products, which include e-mail, sports and finance offerings, and optimizing them for Yahoo’s mobile and tablet users.”




Edited by Braden Becker

TechZone360 Contributor

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