Investors to Yahoo: Growth, Please

Can Yahoo grow again? That’s the question that has been dogging the Internet uberportal for years, and its second quarter report won’t change that question. Revenues rose just 2%–not an unexpected showing but disappointing to investors nonetheless. It also doesn’t help that Yahoo actually lowered its revenue expectations for the full year by $70 million, representing a drop of 11% from 2009. In after-hours trading immediately after the announcement, shares fell about 5%.

The basics vs. analysts’ forecasts:

* Gross revenues of $1.6 billion came in a little lower than the $1.64 billion forecasts.

* Operating income of $175 million came in just under expectations of $178 million.

* Net income of 15 cents a share topped forecasts by about a penny.

You can hear the analyst call and see financial slides here,  as well as all the numbers here, so I’m not going to liveblog everything, but will present some of the highlights from CEO Carol Bartz and the analysts’ questions.

CEO Carol Bartz opens the analyst call and concedes Yahoo came in at the low end of its revenue guidance. Income from operations, up 32%, was pretty good, she said, but she immediately addressed why revenue disappointed: Yahoo didn’t monetize searches as much as expected. In the second week of June, Yahoo also saw a number of major customers hold back on ad buys. She says that situation has improved since then, however.

She says the most important metric to track is engagement with its users. She points to the recent acquisition of Associated Content and Yahoo’s Upshot as examples (though I’m not entirely clear how) as well as social, with Yahoo’s Pulse, and social games, with the agreement to host games from Zynga. She also mentions “one of my favorites,” Bikini 101. Ack.

Bartz says things are more promising in display. On Yahoo’s own sites, display ad revenue rose 19%. That’s partly thanks to new ad formats that are getting people to click and watch.

All in all, I’m doubtful this update will jazz investors. But then, Bartz has always said Yahoo’s turnaround is a multiyear project. She’ll probably be right.

On to the questions:

Is display ad sentiment getting back to that double-digit level after the mid-June swoon? I didn’t catch a solid answer from Bartz.

Why did page view growth decline 4% despite the World Cup? CFO Tim Morse: Talks about difficulty of which metrics to use but concedes the decline is “a little surprising.” Says Yahoo thinks it’s starting to see traction on some of the new initiatives.

When will the transition to a new paid search system happen? Bartz: Still shooting for October.

Was there also a decline in search ads budgets the last few weeks of June? Bartz: Search was actually sluggish for us the whole quarter?

How about mobile? Bartz: Very small percentage but very very important for the future.

Any details on where cost cuts are coming from? Morse: Across the board. Trying to self-fund each initiative.

Can Yahoo still command premium display ad prices? Morse: Yes, on home page and Yahoo Mail log-in pages. Bartz: Our guaranteed pricing was up a lot. Non-guaranteed (remnant ads) down.

Yet another question on why display ad forecast isn’t up much if at all for the third quarter. Morse: Q3 always tougher to call because it always comes down to September. Bartz: Consumer confidence is really weird now. So appopriate guidance.

And that’s about it. Yahoo’s shares are down almost 7% now.

What do you think?

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