yahoo stock yhoo earnings report call q2 2nd second quarter 2014 2q 2q14
Yahoo CEO Marissa Mayer is pictured on stage. Reuters

CEO Marissa Mayer had to acknowledge Tuesday afternoon that Yahoo's recent performance has been disappointing. But even after her admission of "negative trends," Yahoo Inc. (NASDAQ:YHOO) stock was up in after-hours trading -- because the company owns a big chunk of Alibaba, and the Chinese e-commerce giant is heading for an initial public offering later this year that will bring in billions of dollars. Yahoo will give half of its share of the $130 billion Alibaba IPO back to shareholders.

Yahoo Inc. reported Tuesday that its net earnings fell 18 percent to $270 million in the second quarter. Display and search revenue grew in the second quarter, but not at the rate of industry competitors. In three months ending on June 30, Yahoo’s $1.04 billion in revenue dropped 3 percent from the same period in 2013, and short of Wall Street’s expectations for $1.08 billion. Earnings per share rose 5 percent to 37 cents, but were short of forecasts from analysts polled by Thomson Reuters, who expected earnings of 38 cents per share.

“Our top priority is revenue growth, and by that measure, we are not satisfied with our Q2 results,” Mayer said in a press release that accompanied the company’s second-quarter earnings report. “While several areas showed strength, their growth was offset by declines.”

Yahoo also said it will retain a larger stake in Alibaba than it had originally reported, selling 140 million shares instead of 208 million. Yahoo’s 22.6 percent stake in Alibaba is worth upwards of $10 billion, analysts say, but the company is required to sell at least 40 percent of its stock following an initial public offering.

Other than Alibaba, Yahoo’s shareholders have little to celebrate. The company’s advertising business, which makes up 40 percent of its total advertising sales, is down 7 percent from last year, down to $394 million in the second quarter. Yahoo’s ad sales in the second quarter reversed a downward trend from the first three months of 2014, where it had increased advertising sales by 2 percent.

Mayer had said in 2013 that the company's $1.1 billion acquisition of the Tumblr social network would not affect Yahoo revenues until 2014, but the platform failed to have the expected impact. During a live webcast discussing earnings, Mayer said that the purchase was an integral part of the company's long-term strategy.

“We really see Tumblr as the best platform for brands on the Internet … and the majority of those are spending on the platform,” Mayer said. "There are any number of ways that Tumblr was a strategic acquisition."

Mayer will be equipped with enough cash to make large purchases following Alibaba's IPO, and there are rumors she has discussed purchasing competitor AOL Inc. (NYSE:AOL). However, during a call with investors, Mayer said that she was hard at work "reducing complexity here at Yahoo."