Since the start of CEO Marissa Mayer’s tenure, Yahoo’s stock price has been carried largely by its multibillion-dollar stake in Alibaba, the Chinese e-commerce giant it wisely invested in a decade ago. But Alibaba will soon be spun off, allowing investors to eventually cash out.
That means the time is now for Yahoo’s core businesses to convince Wall Street that there is still reason to invest in the Sunnyvale, California, company. On Tuesday, Yahoo will release its first quarterly results since the January announcement of its Alibaba plans. Many investors already expect Yahoo to falter, with analysts estimating on average that it will post $1.06 billion in revenue, or 18 cents per share, down 2.75 percent from $1.09 billion one year ago.
Revenue from display advertisements has been sluggish for years now while Yahoo’s smaller, high-potential businesses -- mobile, video, native advertising and social, or “MaVeNS,” as Mayer puts it -- have been slow to grow. If the company wants to please investors, it will have to show them Tuesday that these businesses are gaining traction.
“Anything that shows that Yahoo is still continuing their steady pace would be a really good sign,” said Johnny Won, founder of Hyperstop, a consultancy firm. “The market will punish them very, very badly if there’s a misstep.”
But there is reason for hope. Though the MaVeNS have been slow to take form, they’ve been showing progress. Last year, generally accepted accounting principles (GAAP) revenue from those businesses came in at $1.1 billion, up 95 percent year over year. At the same time, Mayer’s vision has become clearer: Last year, Yahoo purchased Flurry, a mobile analytics startup, and Brightroll, a video advertising platform, for hundreds of millions of dollars. In February, Yahoo announced a suite of software tools that allow mobile developers to easily use Flurry to incorporate ads from Brightroll and Gemini, the advertising platform Yahoo launched a year ago.
At the same time, Mayer has also reupped Yahoo’s efforts in the lucrative $82 billion search market: In November, Mayer ousted Google as the default search engine on the Firefox browser; in February she made it possible for developers to integrate Yahoo search into their apps; and just last week, she amended Yahoo’s search alliance with Microsoft to allow Yahoo to reap more revenue from the partnership.
“Looks like Yahoo’s driven a several-point share increase in search in the U.S. off the back of that [Firefox] deal, and that should’ve translated to a decent revenue bump as well. I would expect that deal to have had a decent impact in Q1,” said Jan Dawson, chief analyst at Jackdaw Research.
The biggest question mark in Mayer’s strategy is the social component, otherwise known as Tumblr. Yahoo purchased the New York social media company in 2013 for $1.1 billion, and to this day it remains the most high-profile acquisition of Mayer's tenure. Tumblr has yet to grow into the money-making machine older social networks like Facebook and Twitter have become, and there are some signs that Yahoo is getting frustrated.
Mayer reportedly reshuffled Yahoo's leadership team in early April. One notable change involved Tumblr CEO David Karp, who now reports to Flurry CEO Simon Khalaf, instead of directly to Mayer as he had been doing. Yahoo likely considers it too soon to give up on Tumblr, but the leadership changes suggest Yahoo is eager for more results.
“They need to demonstrate progress on that front,” Dawson said. “It’s been Marissa Mayer’s biggest acquisition, probably the most high-profile one, and it needs to start delivering results. It needs to start really contributing meaningfully to growth especially, and so far I’m not sure it’s done that.”