Yahoo Ad Revenue Falls as Recovery Remains Elusive

Yahoo CEO Marissa Mayer remains confident that the turnaround of her company is on track, despite falling ad revenue causing its share price to dip.

The company posted profits of $390m (£255m) for the three months to 31 March, a 36 percent increase from the same quarter last year. While on the surface the figures look encouraging, the profits were helped largely by Yahoo's stake in the strong-performing Alibaba Group, which accounted for $218m of that figure.

Total revenue was $1.1bn which was down seven percent from the first quarter of 2012.

"We are committed to growing our core business. First in line with the industry and ultimately surpassing it," said Mayer, the former Google executive who last summer became Yahoo's third CEO in 12 months.

Despite the optimism, evidence of a major turnaround remains hard to spot as display advert revenue, which accounts for some 40 percent of Yahoo's revenue, declined 11 percent in the first quarter year-on-year.

Ad agencies remain unhappy with Yahoo's performance, with Adam Shlacter, an executive at ad agency Digitas, telling the Wall Street Journal: "If [Yahoo] is not going to be clear about their plans and why we should be paying attention, it opens the door to everybody else."

The news saw Yahoo's share price, which has shown steady growth since Mayer took over in July, fall 4.5 percent in after hours trading.

More time needed

Macquarie Research analyst Ben Schachter told Reuters that Yahoo's ad service "is a core business model that needs significant work. The core takeaway here is more time is going to be needed."

Sameet Sinha, an analyst at B. Riley, added: "People were disappointed by the display advertising because that's Yahoo's key business. We were looking for display [ad revenue] to be down about nine percent and they came in at negative 11."

Mayer said the company was making headway in attracting smartphone users to its services, with more than 300 million monthly mobile users in the first quarter, up from 200 million in Q4 last year. Recent reports of Yahoo strengthening its partnership with Apple's iPhone will see this figure rise further.

Mobile growth

The main areas of growth in mobile for Yahoo were in its recently re-launched Mail and Flickr apps, with daily active users of the Mail app growing by 50 percent since the turn of the year, and uploads to Flickr growing by a similar margin.

It was the company's first earnings call since making headlines for acquiring London-based Summly from 17-year-old developer Nick D'Aloisio in late March, an app it plans to integrate across its mobile services.

Mayer added: "I'm pleased with Yahoo's performance in the first quarter. We saw stability in our business, strengthened our team, and started the year with fast execution against our products and partnerships.

"We are moving quickly to roll out beautifully designed, more intuitive experiences for our users. I'm confident that the improvements we're making to our products will set up the company for long-term growth."