Yahoo's image may have been rejuvenated over the past year thanks to the hiring of Marissa Mayer as CEO, but the company's bottom line has yet to receive the same treatment.
After subtracting how much it cost to get people to check out Yahoo properties, the company booked $1.07 billion in revenue during the second quarter of 2013, down 1% from last year and short of analysts' estimates.
"If you look at the numbers on their own merit, they're still very weak. Particularly worrisome is the weakness in the display [advertising] segment," said Karsten Weide, VP-digital media and entertainment at research firm IDC.
Yahoo's display ad business recorded $423 million in revenue, an 11% decline that is partially self-inflicted as over the last couple quarters Yahoo has been reducing clutter by cutting the number of ads it shows users. But not only is Yahoo selling fewer display ads than last year by 2%, on average the company is charging 12% less per ad.
Yahoo's display business is suffering from a larger shift to more banners being offloaded through automated exchanges to the highest bidder instead of sold directly to advertisers by a dedicated sales team. Those automated, auction-style ad buys typically fetch lower prices, as Ms. Mayer acknowledged during the company's earnings webcast.
"The display business has felt some negative impact particularly due to the shift around programmatic buying," Ms. Mayer said, adding that Yahoo intends to focus on premium ad sales and exchange pricing in the third and fourth quarters.
But the problem isn't only how the ads are being sold but on what device they're being served. As with fellow online ad giants Google and Facebook, Yahoo is seeing more of its user base accessing its sites on their smartphones and tablets, devices on which fewer ads can displayed at a time and for less money per ad. Ms. Mayer said that Yahoo reaches more than 340 million mobile users each month. By comparison Yahoo's desktop properties reached 188.7 million unique visitors in the U.S. last month, per comScore. "With the right mobile ad units," she said, "we believe mobile will be a large revenue driver."
Over the last year, Ms. Mayer has repeatedly cautioned observers that the portal's turnaround is a multi-year undertaking. To that end she has the company on an acquisitions tear, buying nine companies in the second quarter alone. Ms. Mayer's flagship deal has been the $1.1 billion purchase of blogging service Tumblr.
"I think it will take another year before all the stuff she's doing behind the scenes will finally pay off," Mr. Weide said.
A former Google executive, Ms. Mayer's efforts around Yahoo's search product has paid off. Search is something of a bright spot for Yahoo, growing revenue by 5% to $403 million. That's largely due to a 21% increase in the number of search ads people clicked on, as the average price-per-click shrunk by 8%. The number of U.S. unique visitors to Yahoo Search declined by 10% to 66.8 million, according to comScore.