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Yahoo Is Betting on Search, Email and Tumblr to Rally in 2016

Q4 earnings showed growth in native ads and mobile

Yahoo CEO Marissa Mayer said the company will lay off 15 percent of its workforce. Getty Images

Yahoo, fighting to set the company on a more profitable course, announced plans to slash 15 percent of its workforce and shutter legacy products while announcing a streamlined plan with a greater emphasis on search, email and Tumblr.

The news came during the company's fourth-quarter earnings call Tuesday afternoon. Revenue increased to $1.27 billion in the fourth quarter, up from $1.25 billion during the same period in 2014. Total annual revenue in 2015 was $4.97 billion, up from $4.62 billion in 2014. Earnings per share in the fourth quarter was 13 cents, down from 30 cents a year prior.

Yahoo CEO Marissa Mayer said the company plans to reduce its global workforce to 9,000, with fewer than 1,000 contractors, by the end of 2016.

"As we implement these changes, 2016 will very much be a transition year," Mayer said on the call.

The company plans to continue investing in products like Tumblr and Yahoo Mail while also betting more heavily on native and programmatic advertising for revenue, according to Mayer.

However, it's also looking to consolidate other operations—such as by shutting down legacy projects like Yahoo Games and Yahoo Smart TV. (Last month, it shuttered Screen and scaled back its original programming.) Yahoo also plans to shut down some digital magazines and consolidate content for others. Mayer said the company will focus on four key areas that have been strong for the company in the past: news, sports, finance and lifestyle. 

"Yahoo cannot win the hearts and minds of users and advertisers with a complex, fragmented portfolio of products and assets, especially if some no longer meet our aggressive growth goals or distract from growth products," Mayer said. "A simplified Yahoo will yield better focus, execution and ultimately increase shareholder value."

Asked on the call whether users are frustrated with ad load, Mayer said Yahoo has been doing some experimenting—testing start-of-the-day takeover ads on products like Tumblr, for instance—and that she's "comfortable" with Yahoo's ad load and would rather not see it increase. However, she said the company has seen some interest in new ad formats.

On the call, Mayer said the company's operations for mobile, video, native and social—or "Mavens"—will play an increasingly important role. In 2015, Mavens revenue grew to $1.66 billion from $1.15 billion in 2014. Mayer said the same segment of the business is on track to grow to at least $1.8 billion in 2016. She said the company is "really happy" with the growth it's seen in mobile and native.

Mayer said the company's monthly active users on mobile doubled in 2015, and that it's also seen growth from Tumblr and search. Yahoo Mail is viewed as an area to drive increased engagement, she said.

However, according to a report from research firm eMarketer, Yahoo only captured about 2 percent of the digital advertising market share—down from 2.4 percent in 2014.

Mavens revenue accounted for 39 percent of quarterly revenue and 36 percent of traffic-driven revenue. However, some analysts expected it to grow faster.

"Although they are growing, Yahoo's so-called Mavens [mobile, video, native and social] businesses have not gathered enough momentum to turn around Yahoo's advertising business, and we will continue to see the company's market share decline in the near future," eMarketer senior forecasting analyst Martin Uteras said in the report.

Mobile revenue is also growing, rising to $291 million in the fourth quarter from $254 million in 2014. Quarterly revenue growth on PC increased to $931 million, up from $872 million a year earlier. Mayer said native advertising accounted for around $500 million adjusted revenue in 2015.

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