Yahoo Saw Weak Display Ad Spending in Q2

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Yahoo reported $131 million in profit during the second quarter, down from $161 million during the same period last year. The company experienced lackluster display ad revenues in the U.S., and pointed to a continued shift in advertiser demand from branding-oriented display campaigns to performance-based display advertising.

Yahoo President Sue Decker told investors display advertising revenue rose 12 percent excluding traffic acquisition costs. However, U.S. display ad revenue increased less than display revenues from international markets. And while the company's non-guaranteed ad inventory volume increased, in part through its Right Media exchange, guaranteed or premium ad inventory dropped as a result of the economic downturn and pricing pressure, according to Decker.

The company experienced "more weakness on the brand level and strengthening on the performance level," said another Yahoo exec, adding the company is shifting its sales efforts to accommodate greater demand for performance-based display advertising. According to CEO Jerry Yang, the firm hired more than 500 new staffers in product and technology divisions in the past quarter.

Yahoo reported revenues of $1.8 billion, a 6 percent boost over Q2 of last year. Revenues from marketing services were $1.6 billion, 7 percent more than Q2 2007. Marketing services revenues from the company's owned and operated sites came in at about $1 billion, while revenues from affiliate sites were $571 million. Excluding traffic acquisition costs, revenues were $1.3 billion.

Yahoo garnered $1.3 billion in revenues from the U.S. market in the three months ending June 30, up 13 percent over the same period last year. However, international revenues dropped 8 percent since the year-ago period, to $534 million.

Decker stressed Yahoo's long-term goal of converging search and display advertising via its nascent display ad management system. That system is "on track to commence a broader roll out beginning in Q3," she continued. Notably, Decker did not name the platform, until recently called AMP. Yahoo ran into potential trademark infringement problems with Collective Media, a firm with its own ad management platform named AMP. A new name for Yahoo's system has not been announced.

It's been a year since Yang announced his 100 day plan to revitalize Yahoo. He promised the firm would move quickly to set itself straight, sparing no sacred cows. Little did he know what the coming year would hold for Yahoo.

Since then, Microsoft has made its famous bid of over $44 billion for the company, rejected by Yahoo as undervaluing the company. Soon after, other potential suitors emerged, followed by adjustments of Microsoft's original offer, and the intervention of activist investor Carl Icahn.

Yahoo came to an agreement yesterday with Icahn. In lieu of a grander proxy battle, Yahoo will expand its Board to 11 members, including Icahn, and put up eight members for re-election at its upcoming annual meeting. The firm is urging shareholders to "to act now to protect your investment by voting for our eight board nominees today," according to a statement on its corporate Web site.

"Frankly, I think Yahoo's ability to perform is especially impressive in light of the extraordinary events" the company is dealing with this year, said Yang. "This is not business as usual."