Yahoo Makes 20% of Its Money From Mobile, But Not Enough to Grow Revenue

Overall Revenue Declines and Display Business Continues Its Spiral

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Yahoo's back -- but that's not a good thing for Yahoo.

Following its rosiest quarter since Marissa Mayer took over as CEO in July 2012, the portal saw its overall revenue sink in the fourth quarter after improving year-over-year in the third quarter for the first time under Ms. Mayer.

Yahoo's overall revenue fell 1% to $1.3 billion in the fourth quarter, the company reported on Tuesday. The figure fell short of analysts' estimates. The company turned a $166 million profit but that number was twice as big a year ago.

Yahoo's mobile revenue was seemingly a lot bigger than a year ago when the company wouldn't break out how much money it makes from smaller-screen devices. Yahoo made $254 million in mobile revenue during the fourth quarter. That figure doesn't include the revenue that Yahoo shared with third parties. When including that shared money, Yahoo's gross mobile revenue totaled $413 million for the quarter and $1.26 billion for the year to beat Ms. Mayer's previous projection of $1.2 billion.

However the only money that matters is the money that Yahoo gets to keep, and $254 million in mobile revenue only accounts for 20% of Yahoo's overall revenue and is about half as much money as Yahoo makes from search or display advertising alone. To compare, Facebook makes 66% of its money from mobile, and 85% of Twitter's third-quarter revenue came from mobile.

Not only was Yahoo unable to keep its overall revenue-growth streak alive in the fourth quarter, it failed to end other streaks that have been plaguing its business.

Yahoo's display advertising business still hasn't seen its revenue grow year-over-year since the third quarter of 2012. And the portal's average display ad prices still haven't increased year-over-year since the fourth quarter of 2012.

In the fourth quarter, Yahoo made $531.8 million from display advertising. That's a 4% drop from a year ago. And the underlying cause of Yahoo's display revenue declines also continued.

Yahoo still hasn't been able to sell enough ads to compensate for how much it's ads have dropped in price. For each of the past five quarters heading into Q4, Yahoo sold more ads than it did the year before, but it sold them for less money than that prior year. That remained the case in the fourth quarter. Yahoo sold 17% more display ads but for prices that averaged out to be 20% cheaper than they were a year ago.

In past quarters, Yahoo has been clear about why its banner volume and prices have been on a seesaw. Advertisers are flocking to Yahoo's so-called native Stream Ads that run within its sites' content feeds. However Yahoo hasn't spurred enough demand for these ads to charge more for the relatively low-priced placements. So advertisers are pulling their budgets from Yahoo's pricier so-called premium ads like home-page takeovers and only putting back some of the money for the native replacements.

Yahoo was able to keep one positive streak alive in the fourth quarter. The company marked its fourth-straight period of year-over-year search-revenue growth in the fourth quarter. Search revenue grew by 1% year-over-year to $467.3 million. And unlike its display business, Yahoo sold more search ads than it did a year ago and made more money per search ad than a year ago. Of course Yahoo likely was able to sell more search ads because of all the new searches added through its deal with Mozilla to replace Google as the Firefox web browser's default search engine in the U.S.

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