Yahoo post-earnings: Shares drop amid ad problems

A day after Yahoo’s earnings disappointed investors — and CEO Marissa Mayer, who declared “we are not satisfied” — the company’s shares are down sharply. The two main story lines: Ads, and Alibaba.

Second-quarter sales and profit fell and failed to meet expectations. Sales of display ads dropped 7 percent compared with a 2 percent rise last quarter, and the price per ad fell 24 percent. But the Sunnyvale company also announced Tuesday it would hang on to a greater share of its stake in Alibaba when the Chinese Internet giant goes public, and that Yahoo would return half of the money it makes in the IPO to investors.

That Yahoo won’t be burning its stake immediately “gives us more hope that [it] can, over years, find more [tax-] efficient ways to sell its remaining stake” in Alibaba, writes Ben Schachter, analyst for Macquarie Capital. Other analysts agree that the Alibaba stake continues to be good for Yahoo in the long term.

But what the company needs now is ads, sweet ads.

“The big headwind is competition,” Sameet Sinha, an analyst at B. Riley & Co., according to Bloomberg. “The Facebooks and Googles are getting that much further ahead.”

Other analysts said Yahoo needs to have more compelling reasons for advertisers to spend: content, and audience growth. In a note today, analyst Martin Pyykkonen of Rosenblatt Securities criticized Yahoo, saying it “is still not starting to report a full set of usage metrics,” which “seems to put it in the lower end of the Internet sector’s usage benchmarks.”

Yahoo shares were down more than 4.5 percent to $33.96 as of this post. Their 52-week high, reached in January this year, is $41.72.

 

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Levi Sumagaysay Levi Sumagaysay (3903 Posts)

Levi Sumagaysay is editor of the combined SiliconBeat and Good Morning Silicon Valley. She also helps take care of SiliconValley.com, the Mercury News tech website. Email: lsumagaysay (at) bayareanewsgroup (dot-com).