Yahoo Exceeds Sales & Profit Estimates

Yahoo! Inc. (YHOO), the biggest U.S. Web portal, reported profit and sales that beat estimates as Chief Executive Officer Marissa Mayer benefited from advertising demand and cost cuts during her first three months on the job.

Third-quarter earnings, excluding some items, were 35 cents a share, the Sunnyvale, California-based company said in a statement. Sales, excluding revenue passed to partner sites, was $1.09 billion. Analysts on average had estimated profit of 26 cents on revenue of $1.08 billion, according to data compiled by Bloomberg.

The fifth CEO in four years, Mayer is working to restore stability to management ranks and reverse three years of declining revenue as Web users ditched Yahoo in favor of competitors Google Inc. (GOOG) and Facebook Inc. (FB) Her turnaround effort is getting a boost from expense reductions as well as demand in the U.S., where the online advertising market is projected to grow 17 percent to $37.3 billion this year, according to researcher EMarketer Inc.

“The U.S. seems to be an area of strength, and Yahoo is bigger in the U.S.” than its competitors, said Herman Leung, an analyst at Susquehanna International Group who has a neutral rating on the shares.

Yahoo advanced in extended trading. The stock decreased less than 1 percent to $15.77 at the close in New York. The shares have dropped 2.2 percent this year.

Net income attributable to Yahoo rose to $3.16 billion, or $2.64 a share, from $293.3 million, or 23 cents, a year earlier. Income in the 2012 period included a net gain of $2.8 billion related to the sale of a stake in Alibaba Group Holding Ltd.

Ad Revenue

Revenue for display advertising, minus sales passed to partner sites, was little changed at $451.6 million in the quarter, while search revenue increased 11 percent to $414.1 million.

In a departure from past practice, Yahoo didn’t provide an outlook for sales and operating income. Google, Mayer’s former employer, doesn’t issue earnings forecasts.

Mayer has kicked off her Yahoo comeback strategy by hiring several senior deputies. Earlier this month she named Henrique de Castro, previously Google’s vice president of global partner business solutions, as operating chief. Last month, she hired Ken Goldman away from network-security provider Fortinet Inc. to replace Tim Morse as chief financial officer. In August, Mayer added former American Eagle Outfitters Inc. executive Kathy Savitt to lead marketing efforts.

Yahoo’s share of display ads, including banners, will be 9.3 percent this year in the U.S., down from 11 percent last year, EMarketer estimates. Facebook’s portion of the market will be little changed at 14 percent, while Google’s stake will rise about 2 percentage points to 15 percent.

Mayer has taken steps to curtail operations outside the U.S. She completed Yahoo’s sale of half its stake in Chinese partner Alibaba in September, and last week said Yahoo will shut its South Korea business.

Yahoo said it will return $3 billion in proceeds from the Alibaba transaction to investors, after using $646 million for buybacks in recent months.

Yahoo Introduce Video and Images into Sponsored Search.

Yahoo is offering select Y! Search Marketing users the opportunity to integrate images and video into their pay-per-click listings.

Sponsored search remains one of the top-performing tools available to online marketers today. Yahoo’s new service, Rich Ads in Search, would incorporate characteristics of banner advertising into sponsored search ad placements, reports MarketingVOX. Marketers could include videos and images, for example, making the experience "more engaging […] for advertisers," said VP-Search Monetization/Distribution Tim Mayer of Yahoo.

Google is currently piloting a less "rich" program called PlusBox, which enables users to click on a "+" symbol beside search results to see more offerings from a sponsor. These can include product images, posted in a format that mimics auction listings on eBay.

Display advertising is among Yahoo’s strengths. But as the recession presses hard on budgets, marketers are increasingly scaling back on less measurable ad options, including display, and pouring more cash into performance-based models like sponsored search. This trend was reflected in Yahoo’s Q4 earnings report, which saw display advertising fall 2% from the previous year as search ads rose 11%.

Rich Ads in Search was tested for a year with clients like dog food vendor Pedigree. A query for "Pedigree" on Yahoo brings up a pale blue box atop the search results page, where users can click to watch a Pedigree ad.

Other participants in the pilot included Sobe, Pepsi and Home Depot. Yahoo claims some advertisers saw click-through rates rise by as much as 25%, according to The New York Times.

"What the search results look like is a very different experience with rich ads in search versus the text link," said SVP-Revenue/Market Development Joanne Bradford. "There is consistency to the experience, which all advertisers want, and were unable to get until this point."

Instead of following the auction-based price model that rules rates in keyword-based sponsored search ads, Yahoo is charging a monthly fee for Rich Ads in Search. For the time being, only major advertisers with existing ads or logos will be permitted to participate.

Early last year, a JupiterResearch study found users prefer to have relevant content - such as maps, images, reviews and videos - blended into search results. It stands to reason that a similar media-blending method may increase ad relevance to users within sponsored results.