Yahoo Surges After Strong Q1: Has Mayer Righted the Ship?

Source: Thinkstock

Source: Thinkstock

Shares of Yahoo (NASDAQ:YHOO) closed Tuesday’s regular session up 2.29 percent at $34.21 and jumped as much as 7 percent higher in post-market trading after the technology and Internet company reported first-quarter results that beat analyst expectations. Revenue of $1.13 billion, down 1 percent on the year, beat the mean analyst estimate of $1.08 billion, and revenue excluding traffic acquisition costs (TAC) increased 1 percent to $1.09 billion. Adjusted net earnings of 38 cents per share were flat on the year and beat the mean analyst estimate by a penny.

“I am really pleased by our first quarter performance, marking our best Q1 revenue ex-TAC since 2010,” commented Chief Executive Officer Marissa Mayer. “Buoyed by our 9th consecutive quarter of year-over-year growth in Search revenue ex-TAC and our first quarter of Q1 year-over-year growth in display revenue ex-TAC since 2011, Q1 was an early and important sign of growth in our core business.”

Catalyzed in part by the launch of a new advertising suite and Yahoo Gemini, a digital ad marketplace, in the first quarter, ex-TAC display ad revenue increased 2 percent on the year to $409 million. Ads sold increased 7 percent on the year while the price-per-ad declined by about 5 percent. Ex-TAC search revenue increased 9 percent to $444 million, while paid clicks increased by about 6 percent. Price-per-click increased by about 8 percent.

Fueling the market’s positive reaction to the earnings is evidence that Alibaba — a Chinese Internet company that Yahoo owns a 24 percent stake in — is continuing to grow rapidly. Yahoo reported a 66 percent increase in revenues at Alibaba.

Yahoo, like peers Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB), has been grappling with the issue of mobile adoption and monetization over the past few years. The mobile advertising industry, in which Yahoo, Google, and Facebook all compete for dollars, is growing rapidly and becoming increasingly competitive as companies like Twitter (NYSE:TWTR) mature.

“With mobile pivotal to our future growth, we’re delighted to now see more than 430 million monthly mobile users accessing Yahoo’s new products,” Mayer commented in the earnings report. However, Yahoo has yet to cement its place in the mobile ad market.

According to research firm eMarketer, the mobile ad market grew by 103 percent in 2013 to a total $17.96 billion and that this year to date, the market is on track to grow another 75.1 percent to $31.45 billion. Google and Facebook combined take a massive 66 percent of total ad spending in 2013 and 75 percent of new ad spending.

Twitter claimed 2.4 percent of total mobile ad spending in 2013 and is expected to claim 2.6 percent in 2014. Yahoo, however, doesn’t even make the cut, according to the eMarketer report.