LIVE: Display Ad Rebound Powers Yahoo Profit, But Investors Unimpressed

After five straight quarters of declining year-over-year revenues, Yahoo managed to return to growth in its first quarter, even if it was only 1%, to $1.6 billion. But the real upside for the tarnished Internet icon was in profits, which jumped 162%, to $310 million, or 22 cents a share–way ahead of analysts’ 9-cent estimate. You can view the conference call here; for more on that, check out the update below.

The news initially buoyed the stock, which was flat in trading Tuesday, by as much as 4% in after-hours trading before it began falling by more than 1%. Analysts had expected revenues to do better, but they were weighed down by a 14% drop in search-ad revenues. And investors quickly realized that Yahoo’s profit was lifted by 5 cents thanks to its sale of email unit Zimbra and by 2 cents from $78 million in payments by Microsoft related to its search deal with the company.

Indeed, the quarter showed how far Yahoo has to go to return to some semblance of its former glory. Yahoo’s quarter paled next to its key rival Google, which last Thursday reported a better-than-expected first quarter, with profits up 37% and revenues up 23%. Even that wasn’t nearly enough for anxious investors, who had hoped for more. Google’s shares fell almost 8% the next day.

What’s more, Yahoo provided tepid guidance for the second quarter. It forecast profits of $155 million to $195 million on revenues of $1.6 to $1.68 billion.

The best news was that Yahoo’s display advertising, including banner and video ads, grew by 20% in the quarter. Even more important, so-called guaranteed display, the ads that appear on Yahoo’s most-trafficked pages and are bought as much as months in advance, grew even more, by 24%. That’s a positive sign for online advertising, which has been in a slump thanks to the recession.

Update: CEO Carol Bartz is on the conference call (the transcript is now available at Seeking Alpha). “We delivered what I’d call a solid quarter,” she said, in an admission that it was far from spectacular. But she accentuated the positive: display revenues up 20%, higher than the overall market. Brand marketers’ purse strings are “starting to loosen up,” she added.

CFO Tim Morse comes on to admit that revenues came in 2% shy of the middle of Yahoo’s own forecast. He says search revenue should trend upward in the second quarter. His blitz of numbers apparently isn’t impressing investors. Yahoo’s stock is down almost 3% 15 minutes into the call.

Thankfully, Bartz returns, noting that not only is the display market coming back, but the quality of ads is rising as well. She repeats her recent mantra that Yahoo is the only Internet property with “science, art, and scale. “

But she says that moving off  a couple of ad platforms, which consumed much of Yahoo’s energy and investment the last few years, onto a new one will take into the second half of next year.

She also addresses concerns about management turnover at Yahoo–which has been near-total since she joined. She dismisses the critics, saying that few people are paying attention to the new talent coming in. (Kara Swisher, who correctly notes that she breaks most of these departures before they’re announced, decides to take this as a personal criticism, and it probably is. She’s liveblogging the call.)

There’s more, including analysts’ questions, but you’re not missing a whole lot.

Bottom line: It’s not yet apparent how much Yahoo, which more or less jumpstarted online advertising in the late 1990s, will benefit overall from the ad recovery. So Bartz still has a lot to prove.

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