After Semel, a Wait-and-See Q2 for Yahoo!
Almost exactly one month after Yahoo! replaced former CEO and president Terry Semel with co-founder Jerry Yang and former chief financial officer Sue Decker, the search engine/ Web portal posted quarterly financial results that seemed to suggest why the change was necessary.
Net profits for the quarter were $161 million, down almost 2% from $164 million during the same period last year and Yahoo!’s sixth consecutive quarterly earnings decline. Revenue rose 11% to $1.24 billion, from $1.12 billion in Q2 2006.
The company’s results were hurt by both slower growth in the display advertising sector and a falloff in revenue from third-party publishers and Web affiliates. Part of that decline in revenue from non-Yahoo! sites was due to the Panama sponsored-link platform rolled out in the U.S. during Q1 2007. That platform applies click quality indexing partly on clickthrough rates, and as a result, some third-party affiliates contributed less ad revenue to Yahoo!
New CFO Blake Jorgenson said the introduction of both quality-based pricing and domain controls to Yahoo!’s search marketing business will “ultimately benefit both our high-quality affiliates and our [owned and operated Yahoo! sites]”. But he said the company anticipated some lag time between the impact of those pay-per-click innovations and their expected future benefits.
On the other hand, the Panama platform is already contributing financially on Yahoo!’s proprietary Web sites, Decker said, pointing to year-over-year increases of 15% to 20% in revenue per search on U.S. owned and operated sites.
“The marketplace is clearly more responsive to changes in the algorithm than we originally planned for,” she said. “The platform approach gives us the ability to rapidly launch enhancements such as redesigned keyword detail pages, alerts to notify advertisers of campaign opportunities, and many others we’ve already launched this year.”
In her first teleconference since taking on the title of president, Decker also pointed to a number of areas over the years where Yahoo! had failed to seize opportunities for growth. Chief among these, she said, was the decision, made shortly after Yahoo! bought Overture in 2003, to keep the pay-per-click ad delivery system separate from the company’s other ad sales operations, notably display ads.
By not integrating Overture right away, Decker said, Yahoo! was able to ignore the need to invest in its tech development. “We did not see as quickly as we might have the requirements to invest in the core product applications and technology platforms, delaying the development of Panama and allowing our competition to establish a monetization lead,” she said.
Another deficiency was a focus on brand advertisers as display-ad customers. “We were slow to see the growing demand for performance marketing capabilities as well as the requirement to better address smaller advertisers in the tail with better self-service capabilities,” Decker admitted.
She said last week’s acquisition of the Right Media ad exchange and the rollout in early July of SmartAds targeted display ads would remedy that lack of attention to the direct-response market for non-text ads.
In the same post-results conference call, Yahoo! co-founder and CEO Yang said he would spend the next 100 days mapping out a long-term strategy for the company. He stressed several times that in considering whether to terminate some Yahoo! businesses, “there will be no sacred cows.” In mid-June, the company announced it will close down Yahoo Photos, a picture storage site that conflicts with Yahoo!’s much more popular Flickr. And on July 9, the company revealed that it will shutter its Yahoo Bill Pay online transaction service.
