Skip to main content

Advertisement

Advertisement

Alibaba props up Yahoo!, but not for much longer

SAN FRANCISCO — Yahoo! Chief Executive Officer Marissa Mayer was bailed out once again by Alibaba Group Holding, but she will not be able to rely on the Chinese e-commerce firm for much longer, putting the onus on her to accelerate a sales rebound that is only getting started.

SAN FRANCISCO — Yahoo! Chief Executive Officer Marissa Mayer was bailed out once again by Alibaba Group Holding, but she will not be able to rely on the Chinese e-commerce firm for much longer, putting the onus on her to accelerate a sales rebound that is only getting started.

Despite posting a 20 per cent decline in first-quarter net profit, Yahoo!’s shares soared as much as 10 per cent in extended trading on Tuesday, mainly because of stellar results from Alibaba, in which it owns a 24 per cent stake.

The investor reaction shows how Yahoo! is prospering from its lucrative investments in Asia. It also highlights the contrasting performances of Yahoo!’s investment portfolio and its main business of running ad-supported online services.

However, there is one caveat — Ms Mayer, who became Yahoo!’s CEO in mid-2012, will soon lose much of Alibaba’s assistance. After the Chinese company goes public, investors who bought Yahoo!’s shares as a proxy for Alibaba can directly purchase stock of the e-commerce provider.

Also, under the terms of its investment agreement with Alibaba, Yahoo! must sell about 40 per cent of its stake in the Chinese company when the latter goes public.

For the first quarter, Yahoo! reported net income of US$312 million (S$390 million), or 29 cents a share, on revenue of US$1.13 billion.

In the same quarter a year ago, it reported net income of US$390 million, or 35 cents a share, on US$1.14 billion in revenue.

Excluding one-time items and expenses for stock compensation, the company reported a profit of 38 cents a share in the first quarter, the same as a year ago. That matched analysts’ expectations for 37 cents a share in profits on revenue of US$1.08 billion.

“They’re still in the early stages of turning the business around,” said Mr Colin Gillis, an analyst at BGC Partners, who has the equivalent of a hold rating on the shares. “It’s been struggling to find growth.”

Ms Mayer has said a turnaround of Yahoo! will take years, a point she repeated on Tuesday.

“We believe that the type of growth we’d like to see will take multiple years,” she said.

To spur new growth, Ms Mayer has begun a series of initiatives to rebuild the company’s advertising business.

In January, the firm revamped its technology and food sites, abandoning Yahoo!’s traditional hodgepodge of text and links in favour of large, visually rich panels reminiscent of magazines. Ms Mayer is expected to announce similar digital magazines in categories such as travel, entertainment and beauty in the coming weeks.

Yahoo! is also trying to become a bigger player in online video, developing new shows for its digital magazines and talking to Hollywood about original entertainment content.

Ms Mayer told analysts that new mobile and advertising initiatives were gaining momentum, positioning the company for a period of stable but modest growth.

Revenue from its core display advertising business crept up by 2 per cent in the first quarter, reversing several consecutive quarters of declines.

The company forecasts second-quarter revenue of US$1.06 billion to US$1.1 billion. That was in line with analysts’ average estimate of US$1.08 billion and could be higher than the US$1.07 billion that the company generated a year earlier.

Read more of the latest in

Advertisement

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.