Must-know: Yahoo’s 2Q14 earnings were disappointing

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Yahoo reported disappointing 2Q14 earnings

Yahoo (YHOO) reported its 2Q14 earnings on Tuesday in which its revenues of $1.04 billion were below consensus estimates of $1.08 billion. The earnings per share of $0.37 were also below analysts’ expectations of $0.38. Yahoo now predicts its revenues to be between $1.02–$1.06 billion for the third quarter, which is also below analysts’ estimates of $1.10 billion. Yahoo had shown signs of revival in the first quarter when the company earned $0.38 per share on $1.087 billion in revenues—better than analysts’ expectations. As the following chart shows, Yahoo’s revenues declined by 4.5% in 2Q14 over 2Q13. The signs of revival in the first quarter look like more of a blip under Yahoo’s CEO Marissa Mayer’s leadership.

Yahoo Revenues

Yahoo blamed the revenue decline on two issues

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The first issue that Yahoo mentioned was the delay in execution of its Yahoo Ad Manager Plus product. Yahoo defines this product as “an extension of Yahoo Ad Manager for larger advertisers to plan, execute, and optimize complex display ad campaigns directly, giving them greater control over the performance of their ads on Yahoo and third-party programmatic inventory.” Yahoo considers it as an important driver to grow its display advertising business.

The second issue that the company mentioned was the lower-than-expected contribution from premium ads which resulted in an unfavorable mix. Premium ads offer high ad pricing rates, which is why Yahoo plans to increase investments in editorial content.

Yahoo continue to lag behind in digital advertising market

According to a latest report from eMarketer, Google (GOOGL) and Facebook (FB) continue to lead the worldwide digital ad revenue market. Microsoft (MSFT) will overtake Yahoo this year in terms of market share. This will make Yahoo as the fourth largest player in this market. If this happens, it won’t be good news for Yahoo, since Yahoo’s primary business is the digital advertising business. Yahoo’s continued decline also isn’t good news for exchange-traded funds (or ETFs) such as the DJ Internet Index Fund (FDN) and the NASDAQ Internet Portfolio (or PNQI), which have high exposure to Yahoo.

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