Yahoo Now Makes More Money From Search Ads Than Banners

After six straight quarters of overall revenue declines, Yahoo CEO Marissa Mayer may have finally turned around Yahoo's business -- thanks to search advertising, not display. Yahoo reported on Tuesday that its overall revenue grew by 1% to $1.15 billion in the third quarter to beat analysts' estimates. That marks the first time Yahoo's overall quarterly revenue increased over the previous year's mark since the fourth quarter of 2012. And for the first time Yahoo (somewhat) reported its mobile revenue, which the company said was north of $200 million for the quarter. But those weren't the only firsts under Ms. Mayer that Yahoo marked on Tuesday. For the first time since the former Google exec became CEO in July 2012, Yahoo now makes more money from search advertising than it does display ads. Revenue from search advertising grew for the third straight quarter, this time by 4% year-over-year to $452 million. While Yahoo didn't get people to click on any more search ads than they did a year ago, it was able to get advertisers to pay 17% more on average for each of those clicks. But the search revenue growth wasn't enough to improve Yahoo's overall ad revenue. Yahoo's combined search-and-display advertising revenue hit $899 million in the third quarter, a 1% drop compared to a year ago. Yahoo's long-struggling display advertising business is to blame for that. Yahoo has had a hard time getting advertisers to spend more money on the company's banner ads. That has led to consistently declining display advertising revenue and average ad pricing for a company that was once the top banner ad seller online. It's also hampered Yahoo's ability to grow overall revenue, which hasn't seen a year-over-year increase since the fourth quarter of 2012. Heading into the company's third-quarter earnings report, Yahoo was on the verge of going two full years without recording year-over-year display-ad revenue growth in a quarter. And its display-ad rates have been in a tailspin since the fourth quarter of 2012. On Tuesday Yahoo reported that its display-advertising slide has continued and steepened in some respects. Yahoo's display-ad revenue fell by 5% year-over-year to $447 million in the third quarter, as ad price declines failed to offset volume growth. The average price advertisers paid for a display ad dropped by 24% even though Yahoo sold 24% more banners than it did a year ago. The problem is simple: Yahoo is getting advertisers to buy more ads, but for Yahoo's business, they're buying the wrong ads. For the past year, Yahoo's quarterly sales of pricey premium ads like home-page takeovers has declined, while advertisers flocked to the cheaper native Stream Ads that appear within the portal's content feeds. Yahoo has spent 2014 trying to reverse the display-advertising slide. It has made several moves to boost its programmatic position, reignite advertisers' interest in its premium ads and catch up its business with its audience's migration to mobile. It overhauled its ad-tech arsenal to include a new tool for advertisers to buy Yahoo's premium ads programmatically using Yahoo's first-party user data to target them. It introduced new Tumblr-powered advertorial opportunities for its growing roster of digital magazines like Yahoo Tech, Yahoo Food and Yahoo Beauty. It began bundling its native Stream Ads and mobile search ads in a programmatic marketplace. It started running Tumblr ads across Yahoo's other sites and its native ads on other publishers' sites. It bought a mobile ad-tech firm in order to build a mobile ad network to compete with Google's, Facebook's and Twitter's. It hired a print-and-digital publishing vet to oversee ad sales in its most important region. Unfortunately for Yahoo, none of that has yet to result in an improved display ad business, which has now taken a backseat to search in terms of importance to the company's revenue. "Search is a growth story and display hasn't been," Ms. Mayer said during the company's earnings webcast on Tuesday. Ms. Mayer said Yahoo expects its display business to return to growth in the next year. She said that if she had to choose between seeing growth in the number of display ads sold or in the average price-per-ad, she would choose the former. "In my view it's better to have more things to sell," she said. By "more things to sell," Ms. Mayer appears to be referring to the company's so-called native Stream Ads, which appear in the portal's content feeds. These ads accounted for 44% of the display ads the company sold in the third quarter, up from a 40% share in the second quarter. However these ads generate a disproportionately low amount of money. Yahoo made more than $65 million in revenue from its native ads in the third quarter, or 15% of the period's display ad revenue. Yahoo expects a bigger revenue contribution from Tumblr, which Yahoo acquired for $1.1 billion in May 2013. Ms. Mayer said Tumblr should generate more than $100 million in revenue next year. She also shed some light on Tumblr's audience size. Tumblr's and Yahoo's combined monthly audience spans more than 1 billion people, including 550 million monthly mobile users. Previously Yahoo had claimed more than 800 million monthly users and 450 million monthly mobile users for its non-Tumblr properties. Tumblr's own audience spans 428 million users, she said, but it's unclear whether that is how many people who visit Tumblr each month or the number of people who have registered Tumblr accounts.

Yahoo Now Makes More Money From Search Ads Than Banners

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