Yahoo’s Q2 earnings give Marissa Mayer a good starting point

Yahoo office

Yahoo posted better than expected results for its Q2 2012 earnings, with revenue at $1,081 million — flat compared to the second quarter of 2011. Non-GAAP net earnings per diluted share increased 47 percent to $0.27 compared to the same quarter in 2012. Net earnings per diluted share were $0.18, a two percent bump year-over-year.

Wall Street previously braced investors for a slump in Q2. Analysts estimated that Yahoo would post total revenue of $1.09 billion, down 11.3 percent compared to $1.23 billion last year. Net earnings, however, were expected to rise 5.3 percent at $0.20 per share compared to the same period in 2011.

Anyone who’s been following Yahoo over the last year knows how much madness has ensued in the company’s corporate ranks. The board fired its CEO Carol Bartz for being ineffectual in returning Yahoo to dominance. The next person appointed to the position, Scott Thompson, was criticized for also being directionless, and he was ultimately terminated for lying on his resume. Then the company passed up media industry veteran Ross Levinsohn, formerly interim CEO, for the top spot while pursuing Hulu’s Jason Kilar, who declined the position.

For all intents and purposes, it seemed like Yahoo and its board of directors wanted the company to be the next media power house. Hell, even activist investor Dan Loeb of Third Point (which owns six percent of Yahoo) lobbied to get former NBCUniversal President Jeff Zucker appointed as a director, with one-time rumors of trying to push him as a future CEO. Then the board pulled a 180 by hiring the experienced, product-oriented Marissa Mayer to chief exec, making it seem like the company still doesn’t know what it wants. This isn’t the difference between buying a blue car or a red car — shifting from media to a service-oriented strategy is a pretty big move.

That’s not to say Mayer’s appointment wasn’t a smart move or that she won’t be able to grow the company’s media business.

Online ad spending in the US grew 23.8% to $9.51 billion in Q2 2012 over the same period in 2011, according to eMarketer. On an annual basis, Yahoo’s share of overall US online ad revenues, which reached 15.7% in 2009, declined to just 9.5% last year, according to eMarketer. While the online advertising market is expected to grow 23.3% to $39.5 billion this year, Yahoo’s share of revenues will fall further to 7.4%, eMarketer estimates.

That said, Mayer might have been the best choice given the outlook for Yahoo’s advertising and search businesses — not to mention its lack of traction in the mobile advertising market. But that still doesn’t explain why it considered Kilar for the CEO position, seeing as his background is primarily in media.

But, as you can see from the Q2 numbers below, Yahoo’s advertising business did show signs of improvement.

“In the second quarter, non-GAAP earnings per share exceeded consensus and both display and search revenue ex-TAC showed modest growth,” Yahoo CFO Tim Morse said in a statement. “We also moved aggressively with new strategic agreements with Alibaba and Facebook and announced several new partnerships, including CNBC, Clear Channel, and Spotify.”

I assume we’ll learn more in Yahoo’s Q2 2012 earnings call scheduled for later today. We’ll be updating the post with any relevant news from that call. For now, check out some highlights from the quarterly report document pasted below.

Yahoo Q2 2012 Highlights

  • Display revenue ex-TAC was $473 million, a 1 percent increase compared to $467 million for the second quarter of 2011.
  • GAAP display revenue was $535 million, a 2 percent increase compared to $524 million for the second quarter of 2011.
  • Search revenue ex-TAC was $385 million, a 4 percent increase compared to $371 million for the second quarter of 2011.
  • GAAP search revenue was $461 million, a 1 percent decrease compared to $467 million for the second quarter of 2011.
  • Cash flow from operating activities for the second quarter of 2012 was $275 million, a 17 percent decrease compared to $331 million for the same period of 2011. Cash flow from operating activities was $572 million for the six months ended June 30, 2012, a 7 percent increase compared to $536 million for the same period of 2011.
  • Free cash flow was $93 million for the second quarter of 2012, a 2 percent decrease compared to $96 million for the same period of 2011. Free cash flow was $289 million for the six months ended June 30, 2012, a 90 percent increase compared to $152 million for the same period of 2011.
  • Cash, cash equivalents, and investments in marketable debt securities were $2,401 million at June 30, 2012 compared to $2,530 million at December 31, 2011, a decrease of $129 million.
  • During the second quarter of 2012, Yahoo repurchased 30 million shares for $456 million.

Photo via TheTechBlock