Yahoo makes strides, but growth remains soft
Although the jury remains out on Yahoo's (YHOO) ongoing efforts to turn itself around, investors seem encouraged by the Internet company's latest results.
Yahoo stock was up 6 percent in morning trade after it reported solid third-quarter financial results. Although revenue rose only 1 percent for the period -- anemic compared to Yahoo's competitors -- shareholders continue to place their fate in CEO Marissa Mayer.
Two major priorities for Yahoo under her watch are to boost Yahoo's earnings from search and mobile services, and the company is making progress on those fronts. During a conference call on Tuesday to discuss Yahoo's latest financial results, Mayer noted that it has seen year-over-year revenue growth of 80 percent from mobile, social, video and sponsored advertising. Mobile ads have enjoyed notable bump, contributing 17 percent of total revenue in the third quarter.
In other ways, however, Yahoo's recent performance is nothing to write home about. Its 1 percent growth revenue is a rounding error compared to the double-digit gains that Google (GOOG) or Facebook (FB) regularly achieve. Yahoo also saw a dip in revenue from the traditionally important category of display ads. And while the company's earnings per share were up 52 percent excluding the windfall from its sale of Alibaba shares, the Chinese e-commerce giant that went public last month, its income from operations dropped by 55 percent (or 10 percent depending on accounting standards).
In short, over the longer term Yahoo must show much stronger growth if it's to retain the faith that investors are showing in the company's management.
Meanwhile, although Yahoo is making gains in video, mobile, and sponsored content, it faces ferocious competition in these areas. Mobile, in particular, has proven to be tricky, as it still puts downward pressure on overall ad rates. More important than strong growth is recurring revenue that can significantly boost Yahoo's top line and generate profits beyond the increased costs of operations.
Whether Mayer and her management team can find a way to achieve that level of consistency remains an open question.