April 17 (Bloomberg) -- Marissa Mayer’s plan to turn around Yahoo! Inc. is facing setbacks, after the Web portal reported a drop in its main display advertising business and gave a second-quarter sales forecast that may fall short of analyst estimates.
Second-quarter revenue, excluding money passed to partner sites, will be as much as $1.09 billion, Sunnyvale, California, based Yahoo said yesterday on its website. Analysts on average had projected revenue of $1.11 billion, according to data compiled by Bloomberg.
Mayer, nearing her first anniversary of becoming Yahoo’s chief executive officer, the company’s fifth in four years, has little to show for her efforts to restore growth at the largest U.S. Web portal. Her push to revamp products such as Yahoo’s home page and e-mail haven’t reversed the decline in display-ad sales, an area where Google Inc. and Facebook Inc. continue to gain ground.
“Her approach may be right for the long term, but it’s going to look pretty messy for the next little while,” said Brian Wieser, an analyst at Pivotal Research Group LLC based in Portland, Oregon, who rates the shares a hold.
Yahoo shares retreated 0.4 percent to $23.70 at the close in New York. The stock has climbed 19 percent this year, compared with an 8.8 percent gain in the Standard & Poor’s 500 Index.
Sales of display ads decreased 11 percent from a year earlier to $455 million. That was lower than analysts projected and signals Mayer isn’t doing enough to lure advertisers, said Colin Gillis, an analyst at BGC Partners in New York. He recommends holding Yahoo shares.
“The display business is weak,” Gillis said in an interview. “It’s going to take a lot of time for them to turn that around.”
Yahoo’s share of the U.S. market for display ads will shrink to 7.7 percent this year, from 9 percent in 2012, predicts EMarketer Inc. Google will retain its lead, boosting its share to 18 percent, while Facebook will have 16 percent, according to the researcher.
Mayer, speaking on a conference call with analysts yesterday, said her plan so far has focused on hiring and changing the company’s culture. The next phase -- or “sprint,” as Mayer called it -- will feature new products and updates to existing Yahoo services.
“The first phase was all about getting people to believe in Yahoo, making Yahoo a really terrific place to work and contribute and getting the organization fit,” Mayer said on the call. “Now, our focus will shift to the next sprint, which is all about building beautiful products and executing well against our business strategy.”
Search revenue, excluding sales passed to partner sites, dropped 10 percent to $425 million.
First quarter net income attributable to Yahoo increased 36 percent to $390.3 million, or 35 cents a share, from $286.3 million, or 23 cents, a year earlier, the company said in a statement.
Profit excluding 3 cents related to stock-based compensation was 38 cents a share, compared with 27 cents a year earlier, Yahoo said. The company began excluding stock-based compensation from earnings per share in the first quarter. Analysts had estimated 25 cents, on average, according to data compiled by Bloomberg.
Contributing to the pressure on sales were lower prices for search ads, which declined 7 percent from the prior year, and display ad prices, which fell 2 percent, Paul Sweeney, a Bloomberg Industries analyst, wrote in an e-mail.
“Pricing seems to be the culprit for the continued revenue softness,” Sweeney said. “Management has to get their arms around pricing.”
Yahoo bought back $775 million worth of shares in the first quarter, following through on a plan announced last year to distribute proceeds from the sale of part of its stake in Alibaba Group Holding Ltd. to shareholders.
Yahoo is revamping its Web properties and creating new mobile services to court users who rely on smartphones and tablets to go online. Mayer has said she’s working to help consumers on the go perform daily tasks like checking stock quotes or sports scores.
The company grew to more than 300 million monthly mobile users in the first quarter, up from 200 million at the end of 2012. The growth came from investments in mobile apps such as photo-sharing app Flickr as well as the general migration of Web users to wireless devices, Sara Gorman, a spokeswoman for Yahoo, wrote in an e-mail.
Mayer is using small acquisitions of mobile software startups as a way to reignite growth and add talent. Yahoo has purchased at least six startups -- Stamped Inc., OntheAir, Snip.it, Alike, Jybe Inc. and Summly -- since she assumed the CEO post in July.
The CEO demonstrated the technology behind one of those purchases on yesterday’s call with analysts, when she used the Summly app to condense her 2,000-word earnings script to 140 words.
“Yahoo is a consumer Internet company, and the consumer Internet is a growth industry,” Mayer read from the Summly-treated text. “We’re on course to do what we said we would do, which is stabilize and grow with the market.”
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