Yahoo under Mayer remains work in progress

Yahoo chief executive Marissa Mayer wrapped up her first year as head of the world’s largest Internet portal with tepid results on almost every metric.

Revenue fell 7 percent during the second quarter compared to the same period last year, the company reported Tuesday. Display advertising revenue — one of the company’s core products — tumbled 12 percent, and Yahoo’s third quarter and full-year forecasts slipped below Wall Street’s expectations.

The results reinforce analysts’ claims that Yahoo’s soaring stock prices, up 73 percent since last July, have less to do with the 38-year-old chief executive’s attempted turnaround and more to do with Yahoo’s tantalizing stake in the Alibaba Group, the Chinese e-commerce giant that may go public this year. They also attest to Mayer’s incremental, big-budget strategy: modernize Yahoo’s dial-up era image and make it a long-term player against competitors like Google, even at the expense of short-term profits.

“She’s just not focused on revenue,” said Colin Gillis, a technology analyst at BGC Financial. “She’s focused on people and products — that’s a Google mentality. The only difference is that Google has beautiful core products that throw off cash, and Yahoo does not.”

Since early in her Yahoo tenure, Mayer has redesigned many of Yahoo’s core products, including mail, search and photo site Flickr, and killed off the search relic AltaVista. In February, the site saw its first homepage makeover in four years — a change that doubtlessly contributed to a steady year-over-year increase in the amount of time people spend on the site, according to research firm comScore, and increased traffic on several Yahoo properties. The company also multiplied its mobile team by a factor of six, hiring dozens of engineers to work on new mail, sports, weather and news apps.

Meanwhile, Mayer also went on something of an acquisition bender in her first year, buying up 17 technology startups and, more importantly, the employees that came with them. In May, Yahoo famously acquired Tumblr — the scrappy, under-monetized blog platform beloved by teens and 20-somethings — for a whopping $1.1 billion, a move that drew criticism from some analysts and Tumblr users alike.

Investors wondered what potential Mayer saw in the platform, which has 300 million users but only $13 million in 2012 revenues — and enough adult or “NSFW” content to make advertisers squeamish.

“Tumblr is one of the fastest growing media networks in the world,” Mayer said in a Tuesday earnings call during which she also discussed the probability of displaying ads on the platform. However, Mayer later added, “we don’t believe Tumblr will provide meaningful revenue this year.”

Yahoo has also seen a major shift in its culture since Mayer joined, and not only in terms of her ban on telecommuting. The company reports that job applications are up and resignations are down in the past year. Yahoo employees have become “excited about waking up to go to work,” said Sameet Sinha, an analyst at B. Riley & Co., presaging remarks Mayer made about morale during the earnings call. That, he argues, could make a profound difference in the company’s long-term fortunes.

But despite the scale of these changes and the hype surrounding them, there’s little for Yahoo to celebrate yet. Its stock price fell more than 3 percent in late trading on Tuesday. Analysts say Yahoo’s yearlong surge can be credited almost entirely to enthusiasm for online marketplace Alibaba, which Yahoo bought into eight years ago. The company sold off half its shares in September, but its remaining stake, analysts say, could be worth billions if Alibaba chooses to go forward with a promised IPO.

Until then, investors can do little more than wait and see. As Mayer repeated several times during Tuesday’s call, her long game won’t generate revenue immediately, if it pays off at all.

“The greatest risk for Yahoo, as a company, is that the boat has already sailed,” said Sinha, the B. Riley & Co. analyst. “The company has been under-invested in for so many years, and Silicon Valley moves pretty fast. They’ve already lost the war in all the major categories: social, local, mobile. So the big fear for them is if, despite attempts to turn around ... they simply never gain traction.”