It’s the first company’s earnings report after Alibaba went public. Naturally, all eyes are going to be on Yahoo’s massive $35 billion stake in Alibaba.
Robert Galbraith / Reuters
Yahoo surprised investors by beating analyst expectations, bringing in more money than expected.
Thus far, new Yahoo CEO Marissa Mayer has been trying. As a result, much of the attention for the company has not been on Yahoo's core business, but on the roughly $35 billion stake it has in Chinese e-commerce giant Alibaba. Yahoo also has a stake in Yahoo Japan, which altogether has valued the company's core business very poorly.
The company reported earnings of 52 cents per share cents per share in the third quarter, on revenue of $1.09 billion, excluding traffic acquisition costs. Analysts were expecting earnings of around 30 cents per share on revenue of $1.05 billion, excluding traffic acquisition costs. It brought in $396 million in display advertising revenue and $450 million from search advertising, excluding traffic acquisition costs.
Shares of Yahoo rose 2.5% initially after the earnings report came out.
Still, the company's advertising business is starting to get pushed out by upstart advertiser Facebook and Google's continued dominance in search advertising. According to eMarketer, a firm that tracks advertising performance, Yahoo had a 2.9% share of the $120 billion worldwide digital ad market. In 2014, the firm estimates that Yahoo will drop to 2.4% market share. Google and Facebook will continue to lead the way, with a 32.4% and 8% share in 2014, respectively, according to the firm.
In response, Yahoo has purchased a number of companies, including Flurry, a mobile analytics and advertising company, for north of $200 million. The company is also rumored to be buying Brightroll, a video advertising service, for $700 million according to TechCrunch.
Not surprisingly, investors have been very aggressive concerning the company's stake in Alibaba. The e-commerce company went public earlier this year and is valued at around $225 billion, making Yahoo's early investment in the company look like a genius move as it now still owns 15% of the commerce giant. The company netted about $9.5 billion in its initial sale of 140 million shares during the company's IPO.
Mayer had already pledged to return at least half of the capital returns from the company's Alibaba stake to investors, but that might not be enough. Pressure is mounting from hedge funds like Starboard Capital for the company to essentially spin off its core business in a combination with AOL, which would effectively combine the two companies into a content company driven by advertising.
This isn't Yahoo's first bout with an aggressive activist hedge fund. Billionaire investor Carl Icahn fought his way onto the Yahoo board in 2008 after the company passed on a deal to sell to Microsoft for $47.5 billion. In 2012, Dan Loeb of Third Point Partners successfully agitated for a seat on the company's board, and ultimately spearheaded a campaign to replace then-CEO Scott Thompson with Mayer. Once again, Mayer appears to be under pressure to turn Yahoo around, which has made a large number of acquisitions as it searches for life after Alibaba.
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