Organic SEO Blog

231-922-9460 • Contact UsFree SEO Site Audit

Monday, April 08, 2013

New Tech Economy: Mayer's excellent Yahoo adventure


Story originally appeared on USA Today.

Investors will get details April 16 of the company's first full quarter of results since the new CEO began implementing her plan to boost revenue growth, operating income and cash flow.

SAN FRANCISCO — Yahoo CEO Marissa Mayer has so far enjoyed a warm reception from investors, with the company's shares rising 50% to a five-year high since she took the job last July.

Mayer rewarded Yahoo bulls for their confidence in January, when the company reported full-year sales rose for the first time since 2008.

Yahoo's annual net income also surged — nearly fourfold — as it began reaping the benefits of a plan to sell a large chunk of its lucrative stake in Chinese Internet firm Alibaba.

Still, Yahoo's operating income fell 29% in 2012, and 22% in the fourth quarter — from a year earlier — as Mayer ramped up hiring for her battle against Google, Yahoo's dominant rival and her former employer.

Next week, Yahoo investors will get details on the company's first full quarter of results since she began implementing her plan to boost revenue growth, operating income and cash flow.

The report on April 16 will reveal how much Mayer's investments in Internet search, e-mail and other key products have offset the operational savings Yahoo is now enjoying after years of job cuts and reorganizations.

If the results are lackluster, they may also test how much patience investors will have with Mayer, who's referred to her plan as "a multi-year march toward growth" that will require time to pay off.

"Achieving the growth we aspire to will take multiple years," she said on a January conference call with analysts.

To accelerate sales growth at a company that went four years without any, Mayer has targeted four product areas for significant investment: search advertising, display ads, video and the company's mobile platform.

She said Yahoo plans to "continually and methodically revamp and innovate" its key products for all the platforms consumers use to access its products: PC desktops, mobile browsers, smartphone apps and tablets.

To succeed, Mayer's plan must accomplish two things:

First, get more people to use Yahoo products and services, by improving them. This would result in more page views and create a larger advertising inventory for the company to sell.

Second, Yahoo must improve the relevancy of the search results and display ads it serves up to users. That will provide online marketers with more clicks for their ad dollars on Yahoo properties, and eventually allow the company to charge more for them.

So far, the results under Mayer have been mixed. In the fourth quarter, while paid clicks rose 11%, Yahoo's cost-per-click edged up just 1%.

Still, fourth-quarter search revenue was the highest it's been since 2010, when Yahoo began sharing part of its search ad revenue with Microsoft in exchange for using that company's search technology.

The partnership has made no headway in reducing Google's dominant share of the U.S. search market, though, and in October, Mayer signaled that she was re-evaluating the deal, which is up for renewal this month.

The existing deal calls for Microsoft to pay Yahoo a guaranteed amount every quarter — if its search technology fails to provide a minimum amount of revenue for Yahoo.

While Mayer complimented the work of the two companies' search teams during the earnings call in January, she also said that there's more work to do.

On that same call, Yahoo Chief Financial Officer Ken Goldman signaled that the partnership would be either ending or changing, when he said the loss of Microsoft's search revenue guarantee will cost Yahoo $100 million in revenue this year.

If the partnership is ended, Yahoo will once again be on the hook for the full cost of search product development.

Mayer has big plans for mobile, with the company set to rollout new mobile versions of a dozen key products.

The first two upgrades came in December, when Yahoo rolled out revamped versions of its Mail product and Flickr, its picture-display site. The changes to Flickr increased photo uploads by 25%, Mayer has said.

Mayer has benefited from two initiatives that were begun by her predecessors at CEO: the unwinding of the Alibaba stake and layoffs that cut a total of 18% of Yahoo's workers in the two years ended in December.

She's also made the most of her good fortune, as when she announced in September that she would return $3 billion of equity to shareholders, using some of the Alibaba proceeds as well as share repurchases funded by Yahoo's existing cash pile.

Mayer cautioned analysts in January not to expect any benefits from the stepped-up product investments to boost income or cash flow until the second half of 2013 — at the earliest.

Indeed, the company's annual forecasts for cash flow and operating margins disappointed some on Wall Street, and the shares stumbled in the week after Yahoo's January conference call.

But soon after, buyers returned, driving the shares 20% higher in the past three months.

With next week's earnings report, Mayer will have the chance to show how capable she is of rewarding investors for their continued optimism.