Yahoo Inc trimmed its outlook for 2013 revenue after revealing a sharp 12 per cent slide in ad prices in the second quarter, signs that CEO Marissa Mayer's attempts to revive the struggling Internet giant may not produce quick results.
The company is now forecasting revenue of $4.45 billion to $4.55 billion this year, down from $4.5 billion to $4.6 billion previously. Yahoo also reported that second-quarter net revenue was down slightly at $1.071 billion, though it posted adjusted profit that was ahead of Wall Street targets.
Yahoo, in a novel post-results livestream akin to a TV newscast with Mayer and CFO Ken Goldman playing news anchors, acknowledged the pressure on prices but stressed that Yahoo was developing new ad formats and technology that would reverse the trend.
"We can do better in display, and this is going to be a clear focus for the business," a relaxed Mayer said onscreen, referring to Yahoo's display advertising business.
On Tuesday, the company reported a 12 per cent slide in price-per-ad in the second quarter from a year earlier, outstripping the first quarter's 2 per cent decline.
Analysts said advertising exchanges, which help get ads on spots on various Internet websites, are putting pressure on prices, especially for premium advertising.
"If there is some kind of genius happening here, it needs to start materializing later this year, and taking your guidance down is not a step in that direction," BGC analyst Colin Gillis said. "We have had eight quarters of decline for the number of display ads sold. And the price per ad dropped significantly this quarter - that's huge."
"This is just the beginning of the trend, of the drop in the price per ad. You still have a pretty big gap between what you can get direct and what you can get selling on an exchange," Gillis said.
The stock rebounded after an initial 2 per cent to 3 per cent slide, trading 1.1 per cent higher at $27.19 after the company disclosed better-than-expected results from China's Alibaba, the Internet giant of which Yahoo owns 24 per cent.
Shares of Yahoo have gained about 70 per cent since Mayer took over a year ago, in large part due to share buybacks that stem from its slice of Alibaba, which is preparing to go public in what could be the largest debut from a Chinese Internet company.
On Tuesday, Yahoo clarified that it planned to repurchase an additional $1.9 billion of its stock, part of a previously announced $5 billion buyback plan. During the past several quarters, Yahoo has repurchased $3.65 billion of its shares using proceeds from the sale of part of its stake in Alibaba Group.
Yahoo also shared details of Alibaba's first-quarter performance. The company founded by English schoolteacher Jack Ma increased revenue 71 per cent to $1.4 billion in the quarter and almost tripled net income, to $669 million.
As for Yahoo itself, net revenue, which excludes fees paid to partner websites, was $1.071 billion in the second quarter, within its forecast of $1.06 billion to $1.09 billion, but below the $1.081 billion it posted in the second quarter of 2012.
Revenue from its display advertising business in the second quarter fell 11 per cent from the year before on an adjusted basis, while search advertising revenue was up 5 per cent on an adjusted basis.
Yahoo said it earned 35 cents per share, excluding certain items in the second quarter, compared with 30 cents in the year-ago period. Analysts polled by Thomson Financial I/B/E/S were looking for 35 cents in adjusted earnings per share.
"They had guided to basically expect some sort of growth in the second half of the year," said Sameet Sinha, analyst at B. Riley & Co, on the full year net-revenue guidance. "Now that thing is coming down, and you never know, you might end up the year just being flat in terms of revenue."
Plunging ad prices underscore doubts over Yahoo turnaround plan
Marissa Mayer's plan to resuscitate Yahoo seems a simple one: get back the eyeballs, sell more ads and charge higher prices. But the chief executive's plan seems to have run into a major snag.
The price the company charges per ad slid 12 per cent in the April to June period, six times the decline just a quarter ago - a fall that some say highlights how Yahoo has been caught unprepared for the industry shift to automated, programmatic ad buying.
Marketers increasingly prefer to buy online advertising space through automated exchanges, where prices are significantly lower, rather than paying top-dollar for premium ads sold by a Web publisher's salesforce. Ads offered by exchanges also allow marketers to aim ads in real time at specific audiences, such as by gender or age.
Yahoo's ad focus has, however, centered on "on developing media units that were much better for premium buys," said Shar VanBoskirk, an analyst with industry research firm Forrester Research.
Yahoo has its own programmatic ad technology with its Right Media exchange. But analysts say the exchange is not as popular as rival offerings, such as Google's DoubleClick exchange, which is considered the industry standard.
Google, the world's No.1 Web search engine, will report its second-quarter earnings on Thursday.
For many on Wall Street, the industry shift is one more reason means Yahoo's turnaround remains "an open question", especially given that Mayer has said the company remains first and foremost an advertising company.
During Tuesday's post-earnings conference call with analysts, Mayer said Yahoo was bullish on its advertising technology and that it planned to focus on improving various aspects of it in the coming quarters.
But even if Yahoo's ad exchange becomes more competitive, the broader trend of programmatic advertising will continue to pressure its business.
"Programmatic advertising technology continues to have a downward bias to pricing in display advertising and I don't expect that to improve anytime soon," said UBS analyst Eric Sheridan.
One year mark
Mayer took the reins at Yahoo in July 2012 after a tumultuous period in which the company churned through several CEOs and many of its top executives and engineers jumped ship.
She has revamped key products such as mail and the Yahoo home page and jumpstarted acquisitions. Last month, Yahoo closed its $1.1 billion acquisition of popular blogging service Tumblr.
Yahoo's stock has surged roughly 70 per cent since Mayer took the helm but much of the gain has come from stock buybacks and from Yahoo's Asian assets, including a 24 per cent stake in Chinese e-commerce giant and potential IPO debutante Alibaba Group.
Ad numbers, however, remain dismal. Apart from pricing, display ad volumes and paid-clicks for search ads - an important measure of viewers and readers' responsiveness to marketing - continue to shrink.
Yahoo's share of the $17 billion U.S. display ad market is expected to decline to 7.9 per cent in 2013, down from a 9.2 per cent share last year, while Google's share is expected to grow to 17.6 per cent. Facebook is likely to expand its market share to 16.5 per cent, research house eMarketer estimates.
"This core business is going to be ugly for quite some time before it gets better," BGC analyst Colin Gillis said of Yahoo.
"This is just the beginning of the trend, of the drop in the price per ad. You still have a pretty big gap between what you can get direct and what you can get selling on an exchange."