Yahoo: it's bad, but not as bad as expected

Yahoo beat forecasts, but still saw profits slide by more than a quarter. Turns out its Microsoft tie-up isn't exactly going to plan...

by Emma Haslett
Last Updated: 20 Apr 2011
Yahoo's turnaround plan doesn't seem to be bearing fruit yet: the internet company's first-quarter profits of $223m were 28% lower than the same period last year, thanks largely to problems with its search business. There were some encouraging signs in terms of display ads and user engagement - and investor expectations were so low that its share price actually went up after the results were published. But it's clear that CEO Carole Bartz still has her work cut to make Yahoo a force again...

Bartz was drafted in by Yahoo in 2009 to inspire a revival in the face of ever-stiffer competition from the likes of Google and Facebook. One of her more radical ideas was a partnership deal with Microsoft, which involved using the latter's search technology to boost ad revenue in the US. But the tie-up is yet to pay off: various technical glitches are limiting the number of times users can click on ads, which means they're making less money than expected per search - pushing search revenues down by 19%. Not surprisingly, Yahoo has decided not to migrate other countries to the Microsoft platform until these problems have been resolved.

Bartz, as you'd expect, has been trying to put a positive spin on things, insisting that the company’s turnaround is ‘proceeding on schedule’. And there were some encouraging signs. Yahoo’s display ad business (the money it makes from banner ads etc) actually grew by 10% to $471m. The number of minutes users spent on the site was also up by 17% year-on-year, which is good news for two reasons: one, it suggests the content is getting more engaging, and two, it means Yahoo has more time to show people ads. And the Microsoft deal will save Yahoo money eventually once it's fully up and running, Bartz says.

So all in all, a bit of a mixed bag: some good, some bad. But we doubt Google will be quaking in its boots just yet.

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