Yahoo! Q2A – Chinese spotlight.

Alibaba hides very disappointing display revenues.

• Once again Yahoo! has managed to keep poor results hidden amongst the spotlight glare of Alibaba.
• Q2A Revenues / EPS were $1.04bn / $0.37 compared to consensus at $1.09bn / $0.38.
• The biggest disappointment was in revenues from display advertising.
• Yahoo! has been promising a turnaround in these revenues for some considerable time and last quarter (see here) saw the first uptick for a very long time.
• As a long-term believer in Yahoo!, I was hopeful that this was a sign that the transformation of the core products was at last bearing fruit.
• Unfortunately, this quarter’s display revenues are down 7% YoY compared to up 2% YoY that was seen in Q1 14A.
• Yahoo! attributes this to poor revenue mix but the fact that search revenues and revenues from mobile have not been able to take up the slack is worrying.
• Consequently, I have to conclude that Yahoo!’s efforts to migrate its usage into mobile is still floundering which is why it is not seeing anything like the growth of Google, Facebook or Twitter.
• Yahoo! has great services and great traction in fixed Internet but its efforts in mobile have yet to bear any fruit and time is running short.
• The good news is that Yahoo! has reduced the number of shares that it will sell in Alibaba from 208m to 140m and will return at least half of the net proceeds to investors.
• The problem is that as soon as the IPO is over, the share price of Alibaba will crystallise the value at Yahoo!.
• This will end the speculation and return the market’s focus to the underperforming core business.
• With the IPO expected in mid-August, Marissa effectively has one more quarter to show some progress before the grace period is over.
• Yahoo! has the assets with which to create a great ecosystem but currently the assets are disparate with the majority of the traffic being generated in fixed.
• These assets have to be integrated and modified such that they work well together to encourage the user to use his Digital Life within Yahoo!’s services.
• Critically, Yahoo! must entice the user to do that on his mobile device.
• Yahoo! has been working on this for a long time and with the progress shown to date, there still seems to be a long way to go.
• Hence, I am worried that there are more difficult quarters ahead where there will be no glitter from Alibaba to spice up the earnings report.
• Yahoo! still has great potential but execution is becoming a serious concern as time continues to drift by.
• Yahoo! remains in my top 3 but is certainly drifting to the back of the pack behind Google and Microsoft.