We’re used to the ‘we’re in the middle of a transformation’ party line from Yahoo! CEO Marissa Mayer being trotted out once every three months. We’re used to the lacklustre quarterly results and the ‘reasons’ for those. And we’re used to seeing display ad revenue continue to fall.
So yesterday’s Q1 numbers already a certain sense of predictive deja vu about them and didn’t disappoint. But the firm did go one step further and turned in numbers that were even worse than Wall Street had feared, leaving investors asking themselves how bad things might get once the firm spins-off its remaining 15% stake in Chinese e-commerce firm Alibaba.
Yahoo reported a 93% year-on-year profit slide to $21.1 million from $312 million. Total revenue for the quarter grew to $1.23 billion.
That said, the party line from Mayer was repetitively disappointing:
As you know, Yahoo! is amidst a multi-year transformation to return an iconic company to greatness.
We do indeed. We keep being told all about it.
So what’s new this time around? What’s new was a stab at what Mayer called:
the framework of our virtuous cycle: people, products, traffic, and revenue. We believe with the right people you build great products that the market responds to through increased traffic and engagement leading to greater revenue.
This is apparently
one of the key operating principles in our transformation.
On the right people angle, Mayer pointed to the 3000 strong reduction in headcount that she’s achieved in the past 2.5 years, including 1,100 in the past three months. The way she couched it however is that despite the bloodletting, people are lining up to join Yahoo!:
More than half, 51%, of our full-time employees are new under this management team, and it's safe to say that we really are a new Yahoo!, moving with greater purpose, building much more robust and modern products and executing with greater productivity.
Interest in working at Yahoo! is at an all-time high. In Q1 we received nearly 43,000 applications, 150 for each person we hired and an increase of 47% quarter-over-quarter.
Mayer argued that the firm has added so many new business areas that these are attracting the top talent, while the lay-offs have come from the legacy operations:
It's really been about remixing and pivoting the company to not only operate efficiently and with excellence, but really get focused on that future that we built for ourselves. I mean, the big task when we got to Yahoo! was saying, okay, we have several revenue streams that are in decline.
In fact, most of the revenue streams were in decline and that meant that we had to build ourselves a future, one that was moving fast enough at scale and would grow long enough to really build a future to move into.
Back to the future
On the product front, there’s a sort of back-to-basics spin of becoming:
an indispensable guide to digital information.
Or, a search engine as you might put it.
Again Mayer couched it more appealingly perhaps:
Being an indispensable guide means focusing on informing, connecting and entertaining our users, which maps to three key strategic areas: search, communications and digital content.
When we look at what we'll monetize, those forms of digital information moving forward, it's really mobile, video, native, and social and so to me that's really ultimately where we want to be.
As we see new formats appear, be it phones, tablets, watches, televisions, we think that that ability to play the role of the guide and really inform, connect and entertain users will stand the test of time and these new areas of revenue for us in mobile, video, native, and social can really go the distance.
Arguing that search is in the Yahoo! DNA, she cited the partnership signed with Mozilla last November to make Yahoo! search the default for the Firefox browser in the US, as proof that this strategy is delivering:
Mozilla is not only a high-quality deal for us, it is a profitable deal for us. For volume and long-term health of the partnership, introducing Mozilla users to and retaining them on Yahoo! Search is key, and we surpassed all expectations for new users and retention.
Mayer’s thesis is that there are two types of search products emerging:
The classic web search, call it deep reference web search which is classic Google search, Bing search, and there's a new class of products that's really arising with Cortana, Siri, Google Now. Those products are really heavily differentiated both from each other as well as from the historic legacy products.
That's really where we see an opportunity to play, in something that's mobile and as it moves to, for example, the watch and on to television screens and video, we think that there's a really interesting place to play there to help people make better sense of the content they already have access to, content in their mail, using more context to actually provide higher quality results.
More positive things to say included:
- A total of 13 digital magazines now on Yahoo!, five of which are number one in their respective categories according to comScore.
- Autoplay video on the Yahoo! home page is said to have caused a 16% quarter-on-quarter rise in the average number of daily streams.
- Worldwide video streams were up 89% quarter-on-quarter.
- Time per unique user grew 50% quarter-on-quarter.
- Tumblr now boasts “more than 360 of the world's top brands”, up 13% quarter-on-quarter.
- Tumblr traffic is now 474 million people per month.
More negative things to say included:
- A "steep" year-over-year declines in premium and programmatic PC advertising, $100 million down quarter-on-quarter.
- Audience declined 19% year-over-year due to lower prices paid per ad through programmatic pricing.
- Premium advertising declined 40% year-over-year, mostly due to a decline in sales booked directly.
The one place where we're really seeing pricing pressure is in our programmatic sector where we see a lot of advertiser demand both for native and programmatic advertising and that programmatic ad marketplace is very efficient in terms of targeting and placing ads in favor of the advertisers, which we think is great, it delivers good value but it has put increased pricing pressure on our programmatic ads and implicitly the premium ads are moving into the programmatic sector.
The elephant in the room remains Yahoo Japan! With the planned spin-off of the remaining 15% of Yahoo!’s stake in Alibaba into SpinCo, questions have been raised about what the firm plans to do with Yahoo! Japan. There were no answers to those yesterday. Mayer will only say:
To prioritize value and tax efficiencies around our Alibaba stake, and to reduce complexity around the planned spin, we were advised to not place our Yahoo! Japan stake into the proposed SpinCo. That said, we do prioritize maximizing the value of our Yahoo! Japan holdings for our shareholders.
We have retained advisors to determine the most promising opportunities to maximize value and it is currently a key priority to explore those options thoroughly.
When we have more to share on a plan for Yahoo! Japan we will do so.
More of the same, mostly all about sliding further down a slippery slope.