Yahoo Earnings Report Shows Ad Revenue Still Eroding

Yahoo avoids questions about its ongoing financial performance and data security problems by canceling its quarterly earnings conference call with analysts.

To borrow a phrase from songwriter Paul Simon, Yahoo's revenue keeps "slip-slidin' away."

The embattled web services provider, which—in an unusual move—canceled its quarterly conference call with analysts Oct. 18, reported earnings that exceeded analysts' expectations. However, its main source of revenue, desktop advertising, dropped for the seventh time in the last eight quarters.

Yahoo said the decision not to hold a conference call was made due to "the pending transaction with Verizon," in which Verizon Communications offered to buy the company for $4.8 billion in July.

As a result, Yahoo avoided questions about its financial performance and its security problems. It was revealed last month that hackers had broken into Yahoo's data stores and stolen about 500 million personal account information packages.

The breach, which apparently took place in 2014, is one of the largest thefts of personal data on record. Yahoo blamed state-sponsored hackers who penetrated its network to steal personal data, including names, dates of birth and encrypted passwords.

Yahoo posted a 14 percent drop in its core ad revenue to $857 million, which excludes commissions paid to partners for web traffic. However, revenue from Mavens, a grouping of services Yahoo uses to track mobile, video, native and social ads, was encouraging, improving 24 percent to $524 million.

The web services pioneer reported quarterly net income of $162.8 million, or 17 cents a share. Analysts, on average, projected the company to post earnings per share of 14 cents, according to Thomson Reuters. A year ago, the company posted adjusted earnings of 15 cents a share.

Overall revenue—including revenue from investments—rose 6.5 percent in the third quarter to $1.23 billion. The stock price rose slightly at 1.5 percent in after-hours trading.

The report was an indicator of the continued erosion of the company's advertising businesses and caused more concern to investors about the future of Verizon Communications' deal to buy Yahoo.

Reuters reported Oct. 13 that a Verizon lawyer said the telecom company has a "reasonable basis" to believe Yahoo's massive data breach of email accounts represents a material impact that could allow Verizon to withdraw from its $4.83 billion deal to buy the company.

Verizon general counsel Craig Silliman told reporters at a roundtable in Washington the data breach could trigger a clause in the deal that would allow the U.S. wireless company not to complete it.

"I think we have a reasonable basis to believe right now that the impact is material and we're looking to Yahoo to demonstrate to us the full impact. If they believe that it's not, then they'll need to show us that," Silliman said, declining to comment on whether talks are underway to renegotiate the purchase price.

Nonetheless, Yahoo is continuing to prepare for its acquisition and is taking "deep responsibility" in protecting its users.

"In addition to our continued efforts to strengthen our business, we are busy preparing for integration with Verizon," CEO Marissa Mayer said in the earnings press release. "We remain very confident, not only in the value of our business, but also in the value Yahoo products bring to our users' lives."

Chris Preimesberger

Chris Preimesberger

Chris Preimesberger is Editor of Features & Analysis at eWEEK, responsible in part for the publication's coverage areas. In his 10 years and more than 3,500 stories at eWEEK, he has distinguished...