October 20, 2015 Last Updated 7:06 am

Yahoo Q3 earnings miss may have some investors heading for the door

Net revenue declines 8 percent, even as mobile revenue grows; spin-off of Alibaba Group stake remains top priority, along with cost cutting and ‘narrowing’ focus

The turnaround at Yahoo will have to wait, again. The Internet company posted disappointing earnings, missing revenue expectations, and presenting investors with a rather precarious looking P&L.

“Our Q3 results were largely within our forecasted expectations — our GAAP revenue grew 7% year-over-year and our Mavens revenue grew 43%. As we move into 2016, we will work to narrow our strategy, focusing on fewer products with higher quality to achieve improved growth and profitability,” Marissa Mayer, CEO of Yahoo, said in the earnings statement.

“Largely within” the forecasts rarely is considered good news.

The good news: mobile revenue increased and now represents 24 percent of total revenue in Q3 of 2015. But search revenue was $870 million for the third quarter of 2015, an increase of only 2 percent compared to the third quarter of 2014.

While revenue showed gains, traffic acquisition costs meant net revenue was down (which is why you will read that revenue was both up and down in some tech site reports).

Net income shows the company would be running at a loss were it not reporting its equity interests.

Those interests are what Mayer is working to spin-off, but is struggling to do so without incurring a massive tax bill. Meanwhile, Yahoo shares are down 34 percent since the beginning of the year, not helped by the drop in the value of its stake in Alibaba Group – so spinning it off quickly is the goal.

Re/code’s Kara Swisher did not help matters by yesterday recounting Yahoo’s trouble retaining talent.

“Sources said the latest results will show almost no traction in Mayer’s much-promised turnaround,” Swisher wrote. “A key part of her strategy — which has been criticized — has been to “acqhire” talent via acquisitions, as well as getting former Yahoos to return.”

“That seems to not be working as well anymore (if it ever did).”

In the meantime, net revenue is not looking good as acquisition costs rise. As a result, the company is cutting costs and narrowing its strategy. Look for more cuts going forward.

“This quarter we’ve reduced spending in areas such as workforce, facilities and discretionary expenses, and in our ongoing efforts to control expenses, we’ll continue to focus our headcount on growth initiatives,” said Ken Goldman, CFO of Yahoo.

Another bad sign, though probably necessary: Yahoo has signed a deal to let Google sell some of its search inventory. The deal, revealed in Yahoo’s latest 8-K, is not exclusive to Google (so Yahoo could use other third party sellers) but means Yahoo is having a hard time selling out its own inventory and is willing to discount it to third parties.


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