Mobile key to Yahoo turnaround strategy

Mobile key to Yahoo turnaround strategy

Marissa Mayer will put mobile apps and services at the centre of her turnround strategy for Yahoo, she said on Monday, as the internet company reported better than expected third-quarter earnings.

In her first public outline of her strategic vision as chief executive since July’s arrival from Google, Ms Mayer said Yahoo visitors’ “daily habits” of checking sports scores, stock prices and weather, sending email and sharing photos left the company well placed to ride the “fundamental and massive platform shift” of users’ attention away from PCs towards smartphones and tablets.

“Our top priority is a focused, coherent mobile strategy,” she said. “We’re determined to go back to our roots as a consumer internet company focused on user experiences.”

As she begins the latest of several attempts in recent years to turnround the struggling web portal, Ms Mayer’s first quarterly earnings as chief executive came in ahead of expectations.

Yahoo shares rose by more than 4 per cent in after-hours trading after it reported 66 per cent growth in earnings per share to 35c a share, beating Wall Street consensus estimates of about 26c, for the three months to September 30.

Ms Mayer did not indicate any radical departures or new restructuring plans, but intends to improve its technology and management execution after five years of change at the company under a series of different chief executives.

“My view is that the core of Yahoo is incredibly valuable and it’s a great platform to build on,” she said. “I don't think this is a situation where there is a giant pivot ... We aren’t necessarily looking at large-scale restructurings.”

Yahoo will be a “predominantly mobile company” in the “not too distant future”, Ms Mayer said, although it is racing to recruit mobile engineers and designers to fill gaps in its workforce. Consumers’ adoption of smartphones and tablets has caused problems for Yahoo’s younger and faster-growing rivals, Google and Facebook, as advertising revenue is lagging the time spent on mobile.

Ms Mayer did not address how the shift to mobile would affect Yahoo’s advertising rates, but acknowledged the scale of the technical challenge.

“While we’ve made progress, Yahoo hasn’t capitalised on the mobile opportunity,” she said. “We’ve underinvested in our mobile front-end development and we’ve splintered our brand. All of this needs to change.”

While its third-quarter results were stronger than Wall Street’s modest expectations, Yahoo is still underperforming the broader display advertising market, which eMarketer expects to grow by 21.5 per cent this year in the US and where it is being outpaced by Google and Facebook

For the third quarter, Yahoo’s revenues, net of payments to publishers and other third parties, were just ahead of forecasts at $1.09bn, up 2 per cent, sending Yahoo’s shares up by 3.8 per cent in after-hours trading in New York on Monday.

Both search and display advertising showed modest increases in revenue, despite an 18 per cent drop in revenues from Europe, the Middle East and Africa.

But operating margins in the third quarter fell from 17 per cent a year ago to 14 per cent.

Since striking a search partnership with Microsoft through Bing in 2009, which runs until next spring, Yahoo’s market share has continued to slide. EMarketer says that Google holds a 74.5 per cent share of the $17.5bn US search advertising market, while Yahoo’s has fallen from 6.9 per cent to 6.2 per cent.

Ms Mayer said that while the Bing agreement had “experienced some disappointments”, there was opportunity to improve income through the changes to the Yahoo search design and user experience. 

“We’ve been happy working with Microsoft,” she said, in spite of some analysts’ suggestions that she could attempt to strike a new search deal with her former employer, Google.

She insisted that Yahoo’s growth rate could outpace the online advertising market over the course of “multiple years”, partly by investing in its advertising technology to improve marketers’ ability to buy ads automatically, without the need for customised changes to the site other than for very large campaigns.

While she also hoped to improve Yahoo’s targeting capabilities, to personalise both its homepages and advertising, Ms Mayer admitted data about its users was fragmented between its services.

Google and Microsoft have moved to combine this data, causing some controversy among privacy advocates.

Ms Mayer said she would make small acquisitions, mainly of less than $100m, to improve Yahoo’s offerings in mobile and to bring in new talent.

Yahoo reaped $7.6bn pre-tax from the sale of half of its stake in Alibaba, the Chinese ecommerce group, and plans to return $3.65bn to shareholders, through buybacks or dividends.

Cash holdings stood at $7.56bn at the end of September, up from $1.5bn at the end of last year, as a result. The earnings statement also revealed that Yahoo had agreed a new, undrawn $750m credit facility, which it said would be used for “general corporate purposes”.

However, Ken Goldman, Yahoo’s new finance chief, said that the company would spend its resources “prudently” and “with discipline” and remain “very mindful of shareholder value creation”.