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Yahoo Ads Decline, But No Plans to Replace De Castro

Company Sold More Ads in Fourth Quarter But at Lower Prices

By Published on . 4

Yahoo's top advertising executive, COO Henrique de Castro, may be gone, but the business's problems remain.

"Ultimately Henrique was not a fit. That's a very regrettable conclusion," Yahoo CEO Marissa Mayer said during the company's earnings call on Tuesday. She said that the company does not plan to name a replacement. Yahoo head of the Americas Ned Brody oversees ads in the company's biggest region and now reports directly Ms. Mayer, who said she will be taking a bigger role in that side of the business.

Yahoo CEO Marissa Mayer and CFO Ken Goldman during a previous earnings webcast
Yahoo CEO Marissa Mayer and CFO Ken Goldman during a previous earnings webcast Credit: Yahoo Inc.'s Flickr account

Ms. Mayer otherwise struck an optimistic tone, reiterating her disclaimer that Yahoo's turnaround will takes years plural and dodging a follow-up question on Mr. de Castro's departure. But the company's fourth-quarter numbers were not so positive.

Yahoo's fourth-quarter advertising revenue fell by 5% year-over-year to $1.02 billion, while total revenue toppled by 6% to $1.27 billion. After subtracting how much Yahoo spent to get people to check out Yahoo properties -- a cost cut by 48% from last year -- Yahoo's revenue totaled $1.20 billion, matching analysts' expectations. Net income reached $351.7 million.

Yahoo's breadwinner display advertising business still falls short. The division's revenue declined by 6% to $553 million, even though Yahoo sold 3% more ads in the quarter compared with last year. That marks the second straight quarter Yahoo has seen a year-over-year ad volume increase. However Yahoo is not able to make as much money per ad as it once did. The average price per display ad fell by 7%.

Search revenue dipped by 4% to $464 million. As with the display ad business, Yahoo had more opportunities to make money but accrued less per instance. The number of clicks on search ads rose by 17% year-over-year, but the average price-per-click fell by 3%.

Native not helping
Yahoo's problem is twofold. Advertisers aren't interested in paying a premium for its ads, and they're being presented less expensive options. The so-called native, mobile-friendly Stream Ads the company introduced in April are cheaper than -- and potentially stealing attention from -- the premium inventory. Yahoo sold a lower percentage of ads on a premium basis, CFO Ken Goldman said during Tuesday's call. Excluding Stream Ads, the average price per ad would have actually increased in the fourth quarter, he said.

Yahoo has repeatedly rolled out solutions. It introduced a mobile version of seemingly every Yahoo site -- including more than a dozen iPhone apps -- to attract mobile audiences. It created Stream Ads to make money on the smaller screens and facilitate ad buys across desktop and mobile. It publicly recommitted to its ad-tech businesses (twice) to take more control over automated ad buys. It poached a rival's highly regarded ad exec to engender confidence in its ad-tech products. It hired Katie Couric to underscore Yahoo as a place for quality content, like the more lucrative video. None of that seems to have worked so far.

Earlier this month Yahoo made a few moves that may or may not aid against what ails it. The portal overhauled its ad-tech division in hopes of getting more advertisers to purchase its inventory through computer-automated processes that it make easier to place buys. Yahoo also introduced new site designs being referred to as digital magazines that feature full-screen, expensive-looking ads. And a week after those announcements, the company ousted Mr. de Castro, who had only been with the company for a year.

It will be at least another quarter, likely longer, to see whether those moves can turn around Yahoo.

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