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Marissa Mayer's long game for Yahoo! is fast approaching half time with little to show

Stuart Lauchlan Profile picture for user slauchlan July 15, 2014
Summary:
Marissa Mayer said in 2012 that Yahoo!'s best times were ahead of it. So why has she just turned in the worst revenue numbers since she took over as CEO while Google, Facebook and Microsoft win the digital ad wars?

We are not satisfied with our results this past quarter.

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Marissa Mayer

With what is either considerable understatement or wilful self-denial, Marissa Mayer is approaching her second anniversary as the proclaimed savior of Yahoo! and still having to urge Wall Street to keep a sense of perspective:

What we know is this transformation is not a singular event. It is a series of events and quarters, some more challenging than others and some more successful than others and it will take time. In the case of Yahoo!, I have stated in the past that we believe a transformation of this size and scale will take multiple years and we continue to believe that is the case today. Even so given our top priority of long-term sustainable growth, we are not satisfied with our results this past quarter.

Nor should she be, having just announced the worst set of revenue numbers since she took up her post as CEO, down 4% year-on-year to $1.08 billion.

While the firm again talked up its stake in private Chinese ecommerce firm Alibaba as it prepares to go public next month, pledging to return to investors half of its after-tax profits from disposing of 140 million post-IPO shares, this can’t disguise the grim reality that Yahoo!’s core business is still in trouble.

For example, revenue from display advertising fell 8% year on year - and that’s a situation that is only likely to get worse with a new study from eMarketer this week predicting that Yahoo!’s share of the display ad market will drop from 7.1% last year to 6% in 2014.

Mayer admits that what she calls traditional PC display advertising was hit by two Yahoo! specific issues:

The first issue concerned our delayed execution of our audience transition to Yahoo Ad Manager Plus. We took extra time to ensure the product was delivering for our advertisers. During that period buying, on Genome, our existing audience platform slowed and we were left with a revenue shortfall.


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The second issue was a lower-than-expected contribution from premium advertising. Mayer argues that this is an area that demands further investment:

Premium exclusive high-quality content is best monetized through premium direct sales. Premium offers great opportunities to advertisers and it also captures more favorable pricing. As such, we recognized the premium as an important part of our business that merits investment, especially in content.

This is why we have been investing in editorial to increase the quality of our media offering, improve engagement across our verticals and ensure we have premium inventory to attract advertiser demand. Across premium, we will also continue to experiment with new ad units, better targeting and tools to improve the performance and contribution from this segment.

Mobile problems

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In fact, the eMarketer predictions make for grim reading all round for Yahoo! For 2014, eMarketer forecasts digital ad revenues will rise by 16.7% year-over-year from $120.05 billion in 2013. Google will capture 31.45% that, followed by Facebook with 7.79%, Microsoft with 2.54% and Yahoo with 2.52%.

The scenario’s even worse in the mobile advertising space where Google is expected to take 50.2% of predicted 2014 revenues of $32.71 billion, followed by Facebook on 22%.

Yahoo! doesn’t make it into the top 8 contenders in this space,  despite Mayer’s insistence that:

Yahoo! today is a mobile first company. This is something we are very proud of and this is a tremendous change from where we were less than two years ago.

At present we have more than 400 Yahoo!s working exclusively on building iOS and Android apps. This investment is paying off. This quarter we surpassed more than 450 million mobile monthly active users of 36% increase year-over-year.

But significantly perhaps, Yahoo! stopped short of breaking out its mobile ad revenue numbers, only describing mobile’s contribution to overall revenues as:

meaningful.

Mayer argues that Yahoo!’s Gemini unified mobile search and native buying platform is making inroads:

We continue to see the power of consolidating all mobile advertising into one marketplace. Gemini now represents 50% of Yahoo!’s mobile display revenue in the United States. I am also excited to report that our mobile display and our mobile search revenue each grew more than 100% year-over-year.

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She also continues to argue that the long transition she’s warned of repeatedly is in large part due to the revolutionary nature of re-inventing traditional advertising models. She cites the example of Yahoo! Smart TV, which was previously Yahoo Connected TV, as a case in point:

We basically can see when users see commercials and it doesn’t have to be in real-time because it is sound printing off of the sound of the commercial.

Several brand advertisers they can literally for the first time ever tie together their digital ad spend to their television ad spend and they can see what happens when they change the mix of their spend from TV to digital, how do the two reinforce each other, how do they interplay?

There is still a lot more to do, but when you look at where we are today even versus six months ago or a year ago, I think we have much more relevant modern advertising solutions that we have ever had.

Maybe yes, maybe no. But the real question remains how long is Wall Street prepared to put up with being told there's a lot still to do?

My take

In the end of course Mayer is relentlessly upbeat, as she has to be, recalling that she said back in 2012 that she believed Yahoo!s best days lay ahead of it:

I also stated that we intend to do great things and we intend to win. Despite a short-term setback in our pursuit of growth all of those statements have never been more true than they are today.

That’s all good and well, but as far as Wall Street is concerned, it’s the Alibaba stake, or more specifically the profits that it’s going to generate, that is holding investor attention for now.

Once that IPO goes through, Mayer’s going to need to pull something else out of the hat to shore up the share price and on current evidence that's not going to be coming from declining ad revenues.

This may well be a long game, but, to borrow a World Cup analogy, even the longest of games have to reach a half time point where the pundits will weigh in with their assessment.

At the moment,  the most charitable interpretation would be that there's everything to play for in the second half. A less charitable one would be that Yahoo!'s looking less like Germany or Argentina and more like England!

 

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