Yahoo! declines as sales forecast below analysts' estimates

[SAN FRANCISCO] Yahoo! declined in German trading after forecasting sales in the current quarter below analysts' estimates, a sign chief executive officer Marissa Mayer's turnaround effort is still a work in progress.

Yahoo expects third-quarter revenue, excluding sales shared with partner websites, of US$1 billion to US$1.04 billion, the company said on Tuesday. That compares with the US$1.07 billion average of analysts' estimates compiled by Bloomberg. The shares fell as much as 2.7 per cent in Frankfurt to the equivalent of US$38.67 at 9.15 am after increasing less than one per cent to US$39.73 at the close on Tuesday in New York.

"The signs of a recovery in Yahoo's fundamentals are still tentative," Mark Mahaney, an analyst at RBC Capital Markets, said in an interview. "They are not conclusive." Ms Mayer, who arrived at the Sunnyvale, California-based company three years ago, is working to return the Web portal to sustainable growth by investing in more promising businesses such as mobile, social features and video. Sales in the new areas grew 60 per cent to US$399 million during the quarter.

Second-quarter revenue was little changed at US$1.04 billion, Yahoo said in a statement. Profit, excluding items such as stock-based compensation, was 16 US cents a share. Analysts projected, on average, sales of US$1.03 billion and profit of 19 US cents.

The company posted a loss attributable to Yahoo of US$21.6 million in the quarter compared with a gain of US$269.7 million a year earlier. Still, Yahoo reduced its sequential cash operating expenses by US$30 million, chief financial officer Ken Goldman said in the statement.

Yahoo spent US$200 million on traffic acquisition, the revenue it passes to partners, more than quadruple the amount a year earlier.

While Mayer is trying to reshape Yahoo, the company has benefited from its stake of about 15 per cent in Alibaba Group Holding, the largest e-commerce company in China.

Last week, Yahoo filed to spin off its Alibaba shares and said it expects the move to be completed in the fourth quarter - despite concerns about how it may be addressed by the US Internal Revenue Service. Yahoo announced the spinoff in January.

"While much work does lie ahead, this filing signifies a key milestone," Mr Goldman said during a call with analysts. "There are strong and legitimate business purposes for the separation and remain committed to cooperating with relevant regulatory bodies to take the steps necessary to execute the spinoff in Q4."

In April, Ms Mayer said she hired advisers to explore options for the company's stake of about 35 per cent in Yahoo Japan. Mr Goldman said Tuesday that management and the board have reviewed the issue though there are no conclusions yet as the company focuses on the Alibaba spinoff.

Ms Mayer also has been investing in new products and services. In June, the National Football League said it signed a deal with the Web portal to provide free global streaming of a game in October.

"There has not been any turnaround in any meaningful way," said Brian Wieser, an analyst at Pivotal Research Group. "There have been fits and starts - and more fits than starts."

BLOOMBERG