Yahoo Got Brands to Buy More Ads at Higher Prices Than a Year Ago

Portal's Ad Revenue Grew by 18% to $1.02 Billion

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Yahoo CEO Marissa Mayer and CFO Ken Goldman
Yahoo CEO Marissa Mayer and CFO Ken Goldman Credit: Marissa Mayer's Tumblr page

Yahoo has been trying to draw a line in the sand between what its business has historically been and what it needs to be for advertisers to keep giving the company their money.

That line separates the old money Yahoo makes from desktop search ads and standard banners and the new money it's starting to make from mobile, video, native and Tumblr ads, which the company kinda-confusingly groups into one revenue category called MaVeNS. And slowly but surely more of Yahoo's business appears to be crossing that line, indicating that CEO Marissa Mayer's turnaround strategy may be working.

The second quarter of 2015 marked the first time since Ms. Mayer took over as Yahoo CEO in July 2012 that the company was able to get brands to buy more search and display ads and, on average, pay more for both of those ad formats than they did a year ago.

In the second quarter Yahoo made $399 million from these MaVeNS ads, a 60% increase from last year; and 63% of that money came from mobile ad revenue, which grew 54% to total $252 million. Meanwhile Yahoo's non-MaVeNS revenue -- which primarily comes from search and standard, non-video display ads shown to people who visit Yahoo's sites on a desktop computer -- totaled $752 million, a 2% decrease from last year.

Yahoo has been trying to tap these new MaVeNS revenue streams largely because one of its primary moneymakers -- selling desktop banner ads -- has been struggling for years and its search ad business hasn't been able to grow enough to carry the company. As a result, since Ms. Mayer took over as Yahoo's CEO in July 2012, the 21-year-old portal's main businesses of selling search and display ads have been more or less stagnant, as has its overall revenue -- until recently.

In the second quarter of 2015, Yahoo's total revenue increased by 15% year-over-year to $1.24 billion, without subtracting the money Yahoo pays to other companies to drive traffic to the portal's properties. After subtracting those traffic acquisition costs -- which ballooned by 355% year-over-year to total $200 million -- Yahoo's second-quarter revenue beat analysts' estimates of $1.03 billion.

Yahoo's search ad business appears to be experiencing a rebirth under Ms. Mayer while its display ad business seems to be coming around to its mobile, video and social offerings. As a result Yahoo's revenue is growing at a better clip than anytime during Ms. Mayer's tenure.

Yahoo's search business's recent growth streak continues -- thanks, in part, to the deal it struck last year with Mozilla to be the Firefox web browser's default search engine in the U.S. In the second quarter, the company's search revenue rose by 22% to $521 million, as people clicked on 13% more search ads and advertisers paid 4% more, on average, for each of those clicks to mark the sixth straight quarter without a year-over-year decline in search ad clicks or prices.

Things are also looking up for Yahoo's display advertising business. Until the first quarter of 2015, that business had not recorded a period of year-over-year revenue growth since the third quarter of 2012. In the second quarter of 2015, Yahoo display advertising revenue rose by 15% year-over-year to $500 million, as the company sold 9% more ads for 10% more money on average. That ends a nine-quarter streak in which Yahoo had recorded year-over-year declines in display ad prices.

During the company's earnings call on Tuesday, Ms. Mayer pointed to Yahoo's native and video ads as the primary reasons for its display's business price and revenue increases. Native ads sold through Yahoo's Gemini mobile ad marketplace generated $130 million in revenue during the quarter, she added, noting that 19% of those ads ran in third-party apps through Yahoo's mobile ad network Flurry. And video ad revenue increased by 60% year-over-year. She didn't specify actual video ad revenue figures but attributed the video ad revenue increase to the company's acquisition last year of video ad exchange BrightRoll and the recent introduction of autoplay video ads within Yahoo's article feeds.

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