Yahoo reports a 15 percent increase in revenue for the last three months, but analysts and Wall Street are not happy with the aging Internet portal's financial performance.
In its second-quarter earnings call, Yahoo announced that overall revenue rose 15 percent from $1.08 billion to $1.24 billion, the highest revenue boost that Yahoo had seen over the last nearly nine years.
However, that comes with a high cost, as Yahoo spent $200.2 million in the last three months to acquire traffic, a very significant increase from the $43.8 million in spent for traffic during the same period last year. The company posts a loss of $21.6 million, compared to the $269.7 million of profit it reported in 2014, sending Yahoo's stocks dipping more than 1 percent to $39.34 in after-hours trading following the earnings call.
Yahoo has been struggling to revitalize its core advertising business with investments into growth markets that include mobile, video and search ads. Recently, the company has entered revenue-sharing agreements with third parties such as Mozilla, Oracle and app developers where Yahoo pays them a portion of the revenue generated from its ads.
"Historically, whenever I saw businesses buying traffic, I would always think of it as lower-quality income," Ben Schachter, analyst at Macquarie Securities, says. "I think investors are going to discount the traffic pretty meaningfully."
Moreover, Yahoo says it expects the cost of traffic acquisition to rise in the following quarter, with revenue predictions pegged between $1 billion and $1.04 billion, which is well below analyst expectations of $1.07 billion.
Still, Yahoo CEO Marissa Mayer says she is "extremely pleased with our achievements," and revenue from Yahoo's newest segments continue to rise. Yahoo's Mavens, its emerging mobile, video and social ads, rose 14.7 percent. This business includes Yahoo's blogging site Tumblr, mobile app network Flurry and mobile ad buying platform Gemini. Search ads saw revenue increasing by 22 percent with an increase in the price of clicks by 4 percent, while display ads are also on the rise, posting a 15 percent revenue boost and a 10 percent increase in ad prices.
"Native [advertising] pricing is showing really nice improvements," Mayer says, referring to ads paid by brands. "The introduction of more video ads and higher (cost per thousand) from video is what drove a lot of the 10 percent."
After one-time items and stock-based compensation expenses, Yahoo's profits are at 16 cents per share, which falls short of Wall Street's expectations of 19 cents per share and is a massive drop from the 37 cents a share in the same period last year.
Photo: Yahoo | Flickr
