Yahoo Rises as First-Quarter Sales Fuel Turnaround Optimism
Yahoo! Inc. (YHOO) rose the most in almost four months after reporting first-quarter sales that topped estimates, fueling optimism that a turnaround effort by Chief Executive Officer Scott Thompson may take hold.
Revenue, excluding sales passed on to partner sites, rose 1 percent to $1.08 billion, Sunnyvale, California-based Yahoo said in a statement yesterday. That compared with $1.06 billion, the average of analysts’ predictions compiled by Bloomberg, and is the first increase since the third quarter of 2008.
Thompson benefited from growth in the U.S. online-ad market, which grew 23 percent in the period as corporations devoted more marketing dollars to the Web, according to EMarketer Inc. Since taking over as CEO of the top U.S. Web portal in January, Thompson has announced job cuts and a reorganization in his drive to lift profit, reverse a sales slump and lure back users lost to Google Inc. (GOOG) and Facebook Inc.
“It was a good first start,” said Ronald Josey, an analyst at ThinkEquity LLC in New York, who rates the stock a hold and doesn’t own it. “It’s going to take some time.”
Sales and profit this quarter may also exceed estimates. Revenue will be $1.03 billion to $1.14 billion, Yahoo said. That compares with $1.08 billion projected by analysts.
Income from operations in the second quarter will be $115 million to $195 million, Yahoo said, compared with the average $164.1 million forecast compiled by Bloomberg.
Search-advertising revenue, excluding sales passed on to partners, increased 8 percent to $384 million, compared with a 4 percent decline for display, the category that includes banners, boxes and videos adorning Web pages.
Display advertising should return to growth in the current period, Chief Financial Officer Tim Morse said in an interview.
First-quarter profit, excluding some items, was 24 cents, beating the average 17-cent analyst estimate compiled by Bloomberg. Net income attributable to the company rose 28 percent to $286.3 million, or 23 cents a share, from $223 million, or 17 cents, a year earlier.
Yahoo shares rose 3.2 percent to $15.49. The stock has declined 4 percent this year.
Alibaba, Yahoo Japan
The company is benefitting from its stakes in Asian companies, including China’s Alibaba Group Holding Ltd. and Yahoo Japan Corp. On a call with analysts yesterday, Thompson said Yahoo is pursuing discussions with Alibaba about monetizing a portion of its stake. Returning capital to shareholders would be a top priority if there is a deal with Alibaba, he said.
Yahoo is focusing on Alibaba because the parties haven’t been able to overcome differences over the valuation for the Yahoo Japan stake, Thompson said.
Thompson, formerly the president of EBay Inc. (EBAY)’s PayPal unit, earlier this month announced Yahoo would cut about 2,000 jobs. Last week, he outlined a restructuring plan that organizes the company around three areas, including consumers, geographic regions and technology. The consumer division will focus on media, commerce and so-called connections, which include Web search and e-mail, Thompson said.
“The announcements we’ve made over the last several weeks represent the first steps in executing on our plans to get back to our core businesses,” Thompson said yesterday. “We’re putting in place a more focused organizational structure.”
Focusing the Business
Those efforts also include “shutting down” or “transitioning” about 50 properties, Thompson said. He said he will focus engineering on Yahoo’s own businesses instead of theoretical science or platforms for other publishers.
“It sounds like he wants to really refocus on the core, get the costs much more in line with revenue expectations,” said Benjamin Schachter, an analyst at Macquarie Securities USA Inc. in New York. He has a neutral rating on the stock and doesn’t own it.
Thompson said Yahoo has been hampered by a lack of innovation because of the company’s complexity. Still, he said Yahoo’s assets give it opportunities to grow and that it doesn’t need to “reinvent” itself.
Thompson also is grappling with a planned proxy fight by investor Third Point LLC, which owns about 5.8 percent of the company. The investment firm is trying to get four nominees, including Third Point CEO Daniel Loeb, onto Yahoo’s board.
Yahoo added three new independent directors last month, after failing to reach an agreement with Third Point to put some of the investor’s picks on the board. Third Point, which had wanted the company to address topics that included display advertising and management in connection with first-quarter results, said the company needs to do more to drive growth.