Yahoo! Touts "Holistic" Approach, Bets On User Engagement

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By Gabriel Perna: Subscribe to Gabriel's RSS feed

July 21, 2010 11:53 AM EDT

Despite relatively weak revenue growth and a decline in search advertising revenue, Yahoo! peddled its move to a user-engaged, "holistic" approach as a reason for long-term optimism.

Yahoo! reported revenue of $1.13 billion, falling short of analyst expectations of $1.16 billion. Its revenue represented a two percent increase year-over-year. Despite that, net income jumped by 51 percent to $213 million from $141 million year-over-year. Shares of Yahoo's stock were down six percent to $14.32 upon release of earnings results.

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Yahoo! CEO Carol Bartz said a late slowdown in June was the reason for the underperforming revenue, especially the decline in search advertising revenue. "The back half of June there was a slowdown as advertisers pulled back. The first three weeks in July indicate we're back to normal," Bartz said in a conference call to investors.

Bartz said large-scale advertisers pulled back briefly in the end of June, only to come right back and return to normal spending levels in July. "Customer's marketing budgets are easy to dial on and off. It was not a Yahoo! anomaly," Bartz said, adding most companies across the market experience a similar situation in late June.

Despite the concerns about revenue, Bartz and Yahoo! CFO Tim Morse focused on the company's overall content strategy. Both said the company measures its business through user engagement of its various properties such as news, sports and social networks.

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"Obviously we watch revenue and operating margins through internal metrics and third party reports. However, we're concerned with our users and their engagement on our network. How they are engaged with our social networks, with search and with content," Bartz said during the call.

Upon explaining the decline in page views, Morse said these numbers were not as important to Yahoo!'s long-term strategy. "What we are trying to do is move toward a more holistic view," he said.

Bartz pointed to the company's recent acquisition of content site Associated Content and its developing relationship with social networking game developer Zynga as examples of the focus on user-engagement. She also said interactive ads, such as one done for Chevrolet, helped increase search results for the company. The ad increased searches on the Chevy Malibu, Equinox and Traverse up to 50 percent.

"These numbers are great and they are driving engagement. That's what advertising is all about," Bartz said.

It is this approach which had analysts such as Standard & Poor's equity analyst Scott Kessler feeling optimistic on the company. "It's fair to say that in at least a half a dozen discrete areas, Yahoo! is number one or two in market share. That includes search where they are number two on a global basis. You could also include personalization and a whole host of verticals: news, financial, sports and entertainment. They have large market share in all of those categories, and in four of them they are number one," Kessler said.

However, others like Clay Moran, stock analyst at the Benchmark Company, are a bit more skeptical. "The big issue for Yahoo! is the sustained market share loss. They have been losing share on search for years now. As the internet is fragmenting, and you see Facebook and Twitter gain users, Yahoo! has been losing users in general, which can impact display advertising. The fragmenting and specialization of the internet does not favor Yahoo!"

This article is copyrighted by International Business Times, the business news leader