This article originally appeared on TheStreet at 10:09 a.m. ET, April 22, 2015.
Yahoo!'s (YHOO) core business continues to be a problem, but investors are willing to look past that -- for now -- as long as CEO Marissa Mayer gives them treats.
Search and display, Yahoo!'s two core businesses, keep muddling along despite multiple attempts to improve them.
On a conference call after the company reported its first-quarter results, Mayer was quick to tout search, where GAAP revenue increased 20% year over year to $532 million, but upon closer inspection, it's not all that is cracked up to be. This was the first quarter for the Mozilla-Yahoo! search deal, with Yahoo! becoming the default search provider on Mozilla's domestic desktop Web browsers. As a result, traffic acquisition costs, or TAC, rose. When you compare search results ex-TAC year over year, revenue actually fell 3% to $432 million. SunTrust analyst Bob Peck noted this was below the $443 million average estimate of analysts, implying the core business is slowing during a turnaround, one Mayer characterized as "a multiyear transformation to return an iconic company to greatness."
TheStreet's Eric Jackson noted that the poor results may actually help Yahoo! shares. "However, if the results today are bad, Mayer will likely be forced into big job cuts and more IP asset sales to make EBITDA look better," Jackson wrote. "She'll also be less likely to pay $1 billion for things like Foursquare. All that is good for the stock."
Early on Wednesday afternoon, shares of Yahoo! were down 41 cents to $44.08.
Display revenue continues to be weak, at $381 million excluding TAC, a decline of 7% year over year. Yahoo! is selling more ads, having increased the ad load 29% from a year earlier. But prices remain weak, down 7% year over year, as mobile monetization plagues the company.
First-quarter results missed expectations on both the top and bottom lines, with Sunnyvale, Calif.-based Yahoo! earning 15 cents a share on revenue of $1.04 billion, excluding TAC. Analysts surveyed by Thomson Reuters were expecting earnings of 18 cents per share on revenue of $1.08 billion.
Mayer and Chief Financial Officer Ken Goldman continued to talk up MaVNS (a weird buzz word) -- mobile, video, native and social -- as the saviors of the company in a return to get the revenue rising again. The company has made progress on this front, with the group accounting for $363 million in revenue, up 58% from a year earlier.
Here are the three big takeaways from Yahoo!'s first-quarter results.
Even though the actual quarterly results weren't anything for investors to get excited about -- Cantor Fitzgerald analyst Youssef Squali referred to them as "muted" -- Mayer did throw investors a carrot.
On the earnings call, Mayer announced that Yahoo! was looking for ways to best monetize its 35.5% stake in Yahoo! Japan, which it co-owns with Japanese venture-capital firm, SoftBank (SFTBF). SoftBank, for its part, owns a stake in China's Alibaba Group (BABA). Yahoo! is spinning off the rest of its stake in Alibaba tax free to investors in the fourth quarter.
"To prioritize value and tax efficiencies around our Alibaba stake, and to reduce complexity around the planned spin, we were advised to not place our Yahoo! Japan stake into the proposed SpinCo," Mayer said on the call. "That said, we do prioritize maximizing the value of our Yahoo! Japan holdings for our shareholders. We have retained advisors to determine the most promising opportunities to maximize value and it is currently a key priority to explore those options thoroughly."
By noting that it intends to maximize the value of its Yahoo! Japan, Yahoo! gave investors an additional reason to hold onto the stock, adding a bit of upside to the sum of the parts.
Siri, Can You Hear Me Trying to Catch Up?
Mayer also announced that Yahoo!, which is working on expanding its search business via the Mozilla partnership and the renewed agreement with Microsoft (MSFT), may be going after Microsoft, Apple (AAPL) and Google (GOOGL) with its own voice search assistant.
The CEO noted there is a big opportunity in this business, as it allows Yahoo! to be relevant on more screens, from TVs to watches, in addition to smartphones, tablets and desktops. "And those products are really heavily differentiated both from each other as well as from the historic legacy products and so that's really where we see an opportunity to play, in something that's mobile and as it moves to, for example, the watch and on to television screens and video," Mayer said. "We think that there's a really interesting place to play there to help people make better sense of the content they already have access to, content in their mail, using more context to actually provide higher quality results."
She did caution that those kinds of products have a "different cost profile" than the traditional web search, but noted it's also "something that's potentially more relevant to users of technology as we move forward."
New Product Time
The company also unveiled a new product on the call, announcing it was getting into the daily fantasy-sports game. "Normally we do not announce products before launch but this has been such an area of interest for our fantasy players and our investors that we wanted to announce that we have a new daily fantasy offering in the works that will launch this summer," Mayer said.
Yahoo! Sports has an enormous audience, with Mayer noting users spend more than 30 billion minutes a year playing fantasy sports. With the big push and money toward fantasy sports, it makes sense Yahoo! is going to come up with its own product.
By TheStreet's Chris Ciaccia