Yahoo Softens Tough Earnings Report With Google Ad Deal

NEWS ANALYSIS: Yahoo's revenues are down 8 percent, but the prospects of an income-sharing deal with Google bolsters Meyer & Co.

In an obvious smokescreen on the same day it released news of its quarterly earnings information, Yahoo said Oct. 20 that it has signed a search advertising deal with Google, its longtime rival in that very business.

The venerable Web services, search and advertising company had to report that its revenue again has slipped--this time by 8 percent, and that its income and profit fell short of Wall Street projections to investors. However, the news that Yahoo stands to boost its income--possibly big time--via the co-op deal with search giant Google will go a long way to help the bad medicine go down--and keep Marissa Meyer in the CEO's chair for a while longer.

Meanwhile, the numbers for Yahoo have not shown growth. The company reported a net profit of $76.3 million for the third fiscal quarter ended Sept. 30, compared with a profit of $6.77 billion, a year earlier.
Of course, last year's Q3 profit included proceeds of $6.3 billion from the sale shares in Alibaba Group, which went public and raised a record $21.8 billion in September 2014. Minus that event, the net profit at this time in 2014 would have been about $470 million.

In its Oct. 20 report, the company earned 15 cents per share, missing the average analyst estimate of 17 cents. Revenue, after deducting fees paid to partner websites, fell to $1.0 billion from $1.09 billion a year ago.

Yahoo spent a lot more than usual on its traffic acquisition costs, the amount the company spends to attract users to its websites. Those expenses more than quadrupled to $223 million in the quarter, from $54 million a year earlier. The Google deal will help immeasurably here.

A bright spot in the financials came from Yahoo's emerging businesses, which it calls Mavens--mobile, video, native and social advertising. Revenue in that area was up 43 percent to $422 million in the quarter. Native advertising are ads that blend normally into site's Web pages.

On the earnings call, Yahoo provided no new information on SpinCo, the spinoff of its 15 percent stake in Alibaba Group Holding Ltd.

Back in the old days of the Web, no one would have ever thought the two longtime rivals would go into the search advertising business together. But times have changed, as have the choices in Internet search, which include a bevy of sites named Bing, Ask, Wow--and even DuckDuckGo.

The deal with Google will augment its existing search partnership with Microsoft Bing, under which Yahoo gets a percentage of revenue from ads displayed on Google sites when the searcher on Yahoo is referred to Bing.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...