Bloomberg News

Yahoo Sales Miss Estimates as Competitors Siphon Ad Revenue

July 19, 2011

(Updates with analyst’s comment in fourth paragraph.)

July 19 (Bloomberg) -- Yahoo! Inc., the most-visited U.S. Web portal, reported revenue that missed estimates as marketers favored competing sites and a sales-team shakeup made it harder to clinch advertising orders. Shares fell in late trading.

Excluding sales passed on to partner sites, second-quarter revenue slipped 4.6 percent from a year earlier to $1.08 billion, Sunnyvale, California-based Yahoo said in a statement. Analysts surveyed by Bloomberg had estimated $1.11 billion.

Chief Executive Officer Carol Bartz led a U.S. sales team overhaul that caused greater-than-expected turnover, while Yahoo suffered as rivals Facebook Inc. and Google Inc. did a better job getting Web surfers to linger. Yahoo is expected to cede its spot as the top seller of display advertising in the U.S. to Facebook this year, according to researcher EMarketer Inc.

“It’s almost hard to believe they can continue to disappoint the Street, which we thought had fairly weak expectations, but they’ve done that,” said Clayton Moran, an analyst at Benchmark Co. in Boca Raton, Florida.

In display ads -- the banner messages or video clips that flank websites -- Yahoo said sales, excluding funds passed to partners, climbed 5 percent. That fell short of Moran’s 13 percent projection.

Web surfers spent an average of 6.7 hours on Facebook last month, compared with 3.4 hours for Yahoo and 4.1 with Google, according to researcher ComScore Inc. in Reston, Virginia.

Sales-Team Reorganization

Efforts to close deals were impeded by a revamp of Yahoo’s sales team, Yahoo Chief Financial Officer Tim Morse said in an interview.

“In the U.S., our sales force is really under a pretty big transition, so we didn’t close the quarter as strongly as we planned to,” Morse said. “We’ve been reorganizing our U.S. sales force, changing our leadership and kind of overhauling the way we sell in the market to continue to evolve.”

Sales excluding revenue passed on to partners will be $1.05 billion to $1.1 billion in the current period, Yahoo said. That missed the $1.12 billion projected by analysts.

Second-quarter net income attributable to the company rose to $237 million, or 18 cents a share, from $213.3 million, or 15 cents a share, a year earlier, Yahoo said. Profit attributable to Yahoo, excluding some items, was 19 cents a share, matching the average estimate of analysts surveyed by Bloomberg.

Yahoo declined 4.7 percent to $13.90 in extended trading, after closing at $14.59 on the Nasdaq Stock Market. The shares have fallen 12 percent this year.

Alibaba Progress

Bartz, now more than two years into a turnaround effort as CEO, has shuffled the management team, slashed costs with job cuts and invested in product development. She has recently been criticized by investors for her handling of Asian assets, including a stake in China-based Alibaba Group Holding Ltd.

In May, the company said that Alibaba Group had transferred its online-payments unit, Alipay, to a Chinese company mostly owned by Alibaba CEO Jack Ma. The shift, which helped Alipay comply with foreign-ownership restrictions in China, fueled concern that Yahoo’s stake would lose value.

Alibaba, which owns e-commerce businesses in China, helps Yahoo benefit from the growth in the world’s largest Internet market. The company has made headway in discussions aimed at making sure Alibaba is compensated for the transfer, Bartz said today during a conference call with investors.

“We have made substantial progress on the definitive agreements,” Bartz said. “But until every word is finalized, and every document is signed, we’re simply not done. We’ll continue to work in earnest.” The discussions also involve Softbank Corp., Alibaba’s largest shareholder after Yahoo.

Yahoo! Japan

Greenlight Capital Inc., the hedge fund run by David Einhorn, said it sold its stake in Yahoo for a “modest loss” earlier this month, citing concern about the company’s investment in China after the Alipay disclosure. Greenlight said in April it bought shares, speculating that the China unit stake may be worth as much as the company’s entire market value.

The company also is working to unlock shareholder value for its stake in other Asian company, Yahoo! Japan Corp., Morse said during the call. The effort, which may include a spinoff or creation of a stock that would track the value of Yahoo! Japan, is a “top priority” for the management team, he said.

--Editors: Lisa Rapaport, Jillian Ward

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.


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