SAN FRANCISCO - Yahoo's (YHOO) revenue is still evaporating three years into CEO Marissa Mayer's turnaround attempt, magnifying worries that the Internet company will be stuck in a financial sinkhole after spinning off its lucrative stake in China's Alibaba Group (BABA).
The third-quarter report released Tuesday showed Yahoo took another step backward during the summer as its revenue slipped 8 percent from the same time last year to $1 billion. The figure reflects how much revenue that Yahoo keeps after paying its advertising partners -- a bill that has been climbing since the company struck a deal late last year to serve as the built-in search engine in the U.S. on the Firefox browser.
It marked the ninth time in the past 11 quarters that Yahoo's net revenue has declined or remained unchanged from the previous year. Meanwhile, revenue at Yahoo rivals Google (GOOG), Facebook (FB) and Twitter (TWTR) has been steadily surging as advertisers spend more of their marketing budgets on the Internet. Analysts are projecting third-quarter revenue increases ranging from 14 percent to 55 percent at Google, Facebook and Twitter when those companies report their results during the next two weeks.
Yahoo's earnings also plunged, by 99 percent to $76 million, or 8 cents per share, during the three months ended in September. The steep decline reflected the huge windfall Yahoo pocketed earlier from selling some of its stock in Alibaba's initial public offering. If not for expenses covering employee stock options and other options, Yahoo said it would have earned 15 cents per share, matching estimates of analysts surveyed by Zacks Investment Research.
Yahoo's stock dipped 0.9 percent, or 28 cents, to $32.55 in extended trading after the numbers came out.
Investors are now focused on the fate of Yahoo's plan to place its remaining Alibaba holdings -- 384 million shares currently worth about $28 billion -- into a new company called Aabaco Holdings.
Yahoo is doing the spin-off as part of a plan to prevent the remaining profits from its $1 billion investment in Alibaba from being taxed in the U.S., but it's now unclear whether that will pan out. The IRS raised doubts by declining to declare the spin-off will protect the Alibaba stake from being taxed.
Despite that setback, Yahoo still plans to complete the spin-off by next year with the expectation that it will qualify as a tax-free maneuver.
"Our top priority is the planned spin-off of Aabaco Holdings," Mayer said. "This is an important moment for the company, and we continue to strive to complete the spin as quickly as we can."
After releasing its latest earnings, Yahoo announced it's leaning on Google's expertise in Internet search and advertising in a new attempt to boost its revenue in a proposed three-year partnership.
Yahoo had tried to team up with Google in search during 2008 as part of its defense against a takeover attempt by Microsoft (MSFT). That alliance unraveled after the U.S. Justice Department threatened to block the partnership on the grounds that it would thwart competition.
The new deal must also be approved by antitrust regulators. Yahoo will still rely on technology from Microsoft's Bing search engine as part of a 6-year-old partnership.