Yahoo’s Mayer Impresses Investors More Than Advertisers

Originally Appeared in Bloomberg News

Yahoo! CEO Marissa Mayer speaks about the company's acquisition of Tumblr at a press conference in Times Square, New York, on May 20, 2013. Photographer: Mario Tama/Getty Images

Marissa Mayer, the Google Inc. (GOOG) executive brought in a year ago to restore Yahoo! Inc. (YHOO)’s lost luster, has revamped products, shaken up management and presided over a 75 percent rally in the stock.

Even so, Yahoo’s fifth chief executive officer in four years has struggled where it matters most: luring advertisers whose spending will put revenue back on a growth path.

While Yahoo’s shares have soared in the past year on optimism over Mayer’s turnaround plan and the value of its Asian assets, analysts are bracing for another quarter of stagnant sales when the company reports earnings today.

That’s because Mayer so far hasn’t convinced advertisers to spend more money to reach users of the largest U.S. Web portal. Marketers, who continue to shift online-ad budgets to rivals Google and Facebook Inc. (FB), say Mayer’s strategy of buying startups and lavishing perks on employees has ignored the needs of advertisers contributing the bulk of Yahoo’s sales.

“As they continue to acquire more products, how are they going to bring it together?” said Marla Kaplowitz, CEO of MEC North America, a media agency that has worked with Yahoo advertisers such as Visa Inc. (V) and Viacom Inc. (VIAB)’s Paramount Pictures. “Everyone is trying to figure out, how does it all come together and what do they truly stand for?”

Yahoo is projected to report sales, minus revenue passed on to partner sites, of $1.08 billion, in line with results from a year ago, according to the average of analysts’ estimates compiled by Bloomberg. First-quarter revenue was also little changed from a year earlier.
Share Rally

Sara Gorman, a spokeswoman for Sunnyvale, California-based Yahoo, declined to comment on advertiser spending.

Since Mayer’s first day as CEO on July 17, 2012, Yahoo has surged 75 percent, a better run than 93 percent of companies in the Standard & Poor’s 500 Index.

Yahoo’s stock has rallied more than it had during any of Mayer’s recent predecessors in their inaugural years. Carol Bartz presided over a 38 percent rise in 2009, her first year; shares fell 27 percent in Terry Semel’s first year, 2001; and co-founder Jerry Yang’s 2007 debut as CEO saw the stock slide 18 percent.

Still, most of Yahoo’s gains in the past year were driven by the appreciation of its stakes in Alibaba Group Holding Ltd. and Yahoo Japan Corp. (4689), according to Mark Mahaney, an analyst at RBC Capital Markets in San Francisco.

“The vast majority of the move in the stock is due to improved perception of the value of Yahoo’s stakes in Asia,” said Mahaney, who rates the shares outperform, the equivalent of a buy. Mayer “has been a small part of the rise,” he said.
Shopping Spree

After selling half its stake in Alibaba last year, Yahoo currently owns 23 percent of the Hangzhou, China-based online marketplace, which could hold an IPO in Hong Kong this year. Alibaba’s value probably doubled in the past year to about $80 billion, according to Brian Weiser, an analyst at Pivotal Research Group LLC.

Emboldened by proceeds of the Alibaba sale, Mayer embarked on a shopping spree that comprised at least 17 companies, including her $1.1 billion purchase of blogging platform Tumblr Inc., as well as mobile-application makers Stamped Inc. and Jybe Inc. and Summly Ltd., the news-reading application created by teenager Nick D’Aloisio. Earlier this month, Yahoo paid about $70 million for Xobni Corp., a maker of contact-management software, two people said at the time.

The acquisitions have created confusion for some marketers, who are still unclear about whether to shift their spending to ads on Tumblr and Yahoo’s other new properties, said Rob Norman, chief digital officer of media agency GroupM, which works with Yahoo advertisers including Volkswagen AG. GroupM is the media planning and buying division of WPP Plc, which also owns MEC.
Ad Strategy

“The acquisition strategy is either not especially clever or too clever for me,” Norman wrote in an e-mail. “I am negative on Tumblr, as I don’t believe it’s truly social.”

Mayer discussed a restructuring of the sales staff on a conference call with analysts in January. The initiative, led by Chief Operating Officer Henrique de Castro, will create sales teams that serve all clients in a particular industry, such as consumer-packaged goods, Mayer said.

“Customers felt it was sometimes confusing and cumbersome to do business with us,” Mayer said in January. “Looking at our sales organization through the eyes of our clients, we aligned into a solutions focused team that offers a single point of contact for each customer.”
Investor Doubt

While Mayer takes time to hone her pitch to advertisers, Google and Facebook are winning Yahoo’s business. Yahoo’s share of the $17.5 billion market for display ads, its core business, will slip to 7.9 percent in 2013 from 9.2 percent last year, estimates researcher EMarketer Inc. Google will climb almost three percentage points to 18 percent, while Facebook will increase about two points to 17 percent, EMarketer said.

Part of the advantage those two rivals have accumulated is in mobile ads, where Yahoo has yet to create a compelling offering to marketers, said Clark Fredricksen, vice president at New York-based EMarketer.

“Yahoo appears to have a ways to go before it can stand side by side with Google and Facebook in the mobile space,” Fredricksen said in an interview.

Skepticism of Mayer’s strategy is also reflected in the options market, where investors are betting that Yahoo shares are more likely to decline in the coming months. Puts protecting against a 10 percent drop in Yahoo shares cost 3.67 points more than calls betting on a 10 percent gain, according to one-month data compiled by Bloomberg.

“Increasingly, investors are going to want to see some top-line growth,” said Kevin Stadtler, president of Fort Worth, Texas-based Stadtler Capital Management LLC, who manages $16.3 million in assets, including Yahoo shares. “You’ve acquired a number of properties -- let’s see some revenue growth.”