Yahoo’s Ad Business Struggles as Traffic Spikes

Yahoo closed another quarter in which it failed to turn around its display advertising business, sending company stock down more than 7 percent the following morning. While Yahoo sold more ads and reported an increase in overall paid clicks, the prices it commanded for both were down.

The company would be getting hammered by investors if not for its lucrative, decade-long investment in Alibaba Group, which currently stands at 24 percent. That proverbial gift that keeps on giving is coming to an end, however, as Alibaba is widely expected to go public later this year. 

Yahoo banked $174 million in net income on $1.26 billion in revenue (or $1.2 billion excluding traffic acquisition costs), marking an 8 percent year-over-year decline in profit and a 6 percent decrease in revenue. Display ads revenue slid 6 percent from the year-ago period to $533 million, while search revenue was down 4 percent to $464 million.

The number of display ads sold by Yahoo increased 3 percent, but the average price per ad dropped about 7 percent from the previous year. Yahoo’s search business follows a similar trend, with paid clicks jumping 17 percent, but price-per-click dipping 3 percent from the fourth quarter of 2012.

On the earnings call, Yahoo chief executive Marissa Mayer reinforced her commitment to grow revenue, increase traffic across Yahoo’s properties, and continue to focus on opportunities in mobile. Unfortunately for investors, Yahoo still doesn’t make much of anything off its mobile business, even though mobile revenue nearly doubled in 2013.

“In the context of a larger business, our mobile revenue is still not material but the growth trend is very promising,” says Mayer. “We believe there are ad products that have the potential to monetize better on mobile than on desktop. Basically when you look at ads that are specifically designed for the mobile experience we believe we can outperform we have seen in traditional display.” 

Yahoo welcomed more than 400 million users on mobile devices during the quarter, Mayer says, adding that “mobile, social, video, and native grew nearly 60 percent year-over-year.”

The company’s buying spree shows no signs of waining either. Yahoo acquired eight companies — Aviate, PeerCDN, Evntlive, Ptch, SkyPhrase, LookFlow, Bread Labs, and Hitpost — during the recently closed quarter.

“We saw continued stability in the business, and our investments allowed us to bring beautiful products to our users and establish a strong foundation for revenue growth,” Mayer says in a prepared statement. “We are extremely heartened by the year-over-year traffic increase we experienced in 2013, an early sign of return on our investments and the acquisitions we’ve made.”

Yahoo repurchased 129 million shares during 2013 for a total of $3.3 billion.

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