As Yahoo pursues increases in traffic and user engagement, it appears to be coming at even greater expense to its bottom line.
Yahoo’s long winding turnaround is still stuck in rough terrain. Search and display ad revenues are down; revenue and net income is down, as is the company’s average price per ad. During the most recently closed quarter, every top-line metric for year-over-year financial performance was on the decline.
As Yahoo pursues increases in traffic and user engagement, it appears to be coming at an even greater expense to its bottom line. Whether the two are directly correlated, the parallel storylines for Yahoo of late remain the same – traffic is up, but money is slipping away.
Yahoo banked $93 million in operational income on nearly $1.14 billion in revenue in the last quarter. Revenue slid 5 percent, while income took a dive of 39 percent. Net earnings per diluted share declined 89 percent.
“We’ve continued to invest in and strengthen our core business, while being disciplined on expenses,” chief executive Marissa Mayer tells investors on the company’s earnings call. “We are executing a series of sprints in order to achieve growth. Our current sprint is deeply focused on product quality and growing traffic, and we’ve demonstrated great momentum on both this quarter.”
Mayer describes her strategy, one that has played out in Silicon Valley for decades to varying degrees of success, as such: “People, products, traffic, revenue – that is the chain reaction we are working to trigger. Great teams build beautiful, engaging products, and those products drive increased traffic. The increased traffic generates greater advertiser interest, which ultimately results in revenue growth.”
The biggest problem for Yahoo and its investors today is that revenue growth has been hard to come by, but they can collectively hang their hat on traffic gains, product launches and refreshes.
“Q3 was an unprecedented quarter for the company,” Mayer says. “Today I’m excited to announce in September, we achieved crossover with our 2011 global traffic levels, meaning that our product spreads and the resulting increased engagements has effectively erased two years of traffic declines.”
Yahoo also surpassed 800 million monthly unique users last month, representing a 20 percent increase over the past 15 months, according to Mayer, adding that Yahoo has never reached that threshold before on its core network. “We are particularly proud of these milestones,” she comments. “Yahoo is now reaching more users than ever before.”
Gains across mobile are even more profound, as the number of monthly mobile users jumped 15 percent from the previous quarter to more 390 million.
Mayer says she believes that “Yahoo’s future is in mobile,” not only because of the dramatic consumer shift to mobile devices but also the new advertising opportunities that are coming along as a result. “We believe there are some advertisers that will monetize better on mobile than on desktop… We believe very strongly that mobile ads designed for the mobile experience may outperform what we’ve seen in traditional display.”
Search revenue slid 8 percent during the quarter to $435 million, but paid clicks were up 21 percent. Meanwhile, revenue from Yahoo’s display ad business fell 7 percent to $470 million. Excluding traffic acquisition costs, display ad revenue was still down 7 percent to $421 million.
Yahoo’s average ad price dropped 7 percent during the quarter while it made a modest 1 percent gain in the number of ads sold outside of Korea. Throughout the quarter, the company launched 15 products and acquired eight companies.
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Matt Kapko has been writing about mobile since 2006, before it became cool. Based in Long Beach, CA, he has covered mobile entertainment, digital media, marketing, and advertising for several business media outlets. A former editor and reporter for RCR Wireless News, paidContent, and iMedia Connection, Matt is a regular freelance reporter for ClickZ. You can follow Matt on Twitter at @MattKapko or drop him a line at firstname.lastname@example.org.
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