Yahoo Ad Revenue Slides Amid Mobile Gap, Reduced Inventory

Web traffic also declines but the slide slows

Companies typically open their quarterly earnings calls with the disclaimer that current revenue and performance numbers do not necessarily reflect future results. Yahoo may have wanted to repeat that line when it began its first-quarter earnings call on Tuesday, though the sentiment echoed throughout the call.

In Marissa Mayer’s second full quarter as CEO, the company's quarterly revenue slid 7 percent from the year-earlier period—to $1.14 billion. Yahoo also failed to exceed analysts’ estimates when subtracting how much it cost Yahoo to get people to check out their properties. More specifically, Yahoo’s two core revenue streams—display and search advertising—each trailed their Q1 2012 marks.

Marissa Mayer

Revenue from display advertising fell 11 percent to $455 million, sunk by a 7 percent decline in the number of ads sold (marking the seventh consecutive quarter of year-over-year declines) and a 2 percent drop in the price per ad. Yahoo CFO Ken Goldman cited reduced supply as the “main driver” behind the declines. In addition to intentional inventory reductions, Mayer noted "continued traffic trends that are declining." But, she added, "We are seeing a slowing in that trend.”

Yahoo doesn’t disclose traffic numbers to the extent that it did in pre-Mayer days, but it appears that one type of traffic growth Yahoo is seeing isn’t helping offset the display revenue declines.

As with Google and Facebook previously, Mayer said Yahoo’s ad revenues suffered from a rise in consumers accessing Yahoo properties from their mobile devices, which fetch lower ad rates than their desktop counterparts. Yahoo closed last year with an average of 200 million monthly mobile unique visitors, and that number shot up to 300 million monthly uniques in Q1, according to Mayer. At the same time, mobile has been at the forefront of the CEO's acquisition spree.

Describing the mobile monetization gap as a “short-term trend,” Mayer added that “as we experiment in mobile monetization, we’re confident the pricing gap…will close.”

Like display, Yahoo’s search advertising business had a rough quarter. While Yahoo recorded 16 percent more paid clicks than Q1 2012, the price of each click dipped by 7 percent as search ad revenue declined 10 percent to $425 million.

Again, mobile contributed to the price drop, but Mayer painted Yahoo’s search business in positive light. Yahoo has experimented with how it presents search ads to users, which has boosted click volume. So, as pricing normalizes, revenue may increase. “I anticipate we’ll see some growth already [in search revenue] in the second half of this year,” Mayer said.

Like most of Silicon Valley, Mayer takes a Field of Dreams approach to advertising revenue: Build great products and marketers will come. She broke down that philosophy into what she described as a “chain reaction.” Establish a base of employees who will build great products that will gain high adoption and engagement from users, which in turn will attract advertising spend and generate more revenue.

The first step, or “sprint” as Mayer called it, centered on talent—those acqui-hires and the Yahoo alumni that accounted for 14 percent of all new hires in Q1. “Now our focus will shift to the next sprint, which is all about building excellent products,” Mayer said.

Once more mobile will be central to the next phase, and Mayer related an experiment she conducted to identify the most popular mobile apps among employees beyond carrier-operated ones like calling and text messaging.

Email apps topped the list, followed by those related to weather, news, sports, games, photos, group messaging and finance. That’s “almost an exact correlation to Yahoo’s business and core product line,” Mayer said. Yahoo already has revamped its email and photo apps through the redesigns of Yahoo Mail and Flickr and will extend that make-over to other products.

Recommended articles