Yahoo's (YHOO) earnings report for the second quarter continued a long-term problem with revenue. Even as CEO Marissa Mayer pushes to turn the company around, it stubbornly continues pointing as it has for years.
The lack of real improvement isn't a matter of unwillingness. Mayer, as was true with her predecessors, understands the company cannot continue the way it has gone. However, the hurdles Yahoo faces are deeply embedded in the company and a vicious circle that has created a large feedback loop for failure.
Lack of advertiser interest
Despite Yahoo's long history and the fact that its properties are one of the top destinations for people on the Internet, advertisers are relatively uninterested. They buy ads, but aren't enthusiastic about the marketing opportunities through the company. If they were, the advertisers would spend much more, a fact that would be obvious through Yahoo's regular financial filings.
Insufficient organic revenue growth
The lack of advertiser interest has a direct impact on revenue. The less important the company is to marketing strategies, the less money it makes. The pattern is clear even in second-quarter results. Revenue was up 15 percent year over year, with growth in display ads, a critical category for showing advertiser interest, the strongest since 2010. However, there is a big catch: The cost of acquiring that revenue jumped by roughly 3.5 times, wiping out the actual revenue dollar increase. In other words, Yahoo saw growth, but only because it paid handsomely for traffic from other sources. The company needs true organic revenue growth the eventually flows to the bottom line, not out the door.
As revenue has continued to disappoint Wall Street long before Mayer arrived, the company has historically tried to find a strategy that would work. That may be a development out of Yahoo's genesis as a directory of interesting things on the Web. The result is that the company runs one way and then another. When was the last time that any CEO of the company could concisely state what it was and what it did? Chasing back and forth continues to cost Yahoo money, as the recent earnings show. Even stripping out one-time items and stock compensation, earnings per share were 16 cents, down from 37 cents last year at the same time and a miss from the perspective of analysts, who expected 19 cents.
No viable platform
The thrashing strategy has led to a company that is a collection of many pieces but lacks a perceivable core. Facebook has the social network. Apple has mobile devices and an ecosystem of connected services and content. Google uses its search engine and Android mobile operating system to support most of its businesses. Yahoo's identity is a home page, which is to say that it has none, as people can go to the individual services they want.
Back to the beginning
The result is a fractured set of offerings that don't provide the draw the company needs to keep users bound to it. Advertisers notice this and write down the potential marketing value that Yahoo represents to them, leading to another round of what keeps the company moving in circles rather than progressing.