Yahoo's Growth Anemic as Turnaround Chugs Along

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/ Source: Reuters

Yahoo Inc. barely managed to expand its core advertising business in the first quarter despite Chief Executive Marissa Mayer's two-year effort to revive growth at the Internet pioneer.

But its shares jumped 8 percent on strong results from Alibaba Group Holding Ltd., the Chinese e-commerce company in which it owns a 24 percent stake, ahead of its highly anticipated initial public offering.

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Yahoo is trying to revitalize its business under Mayer, who took the reins about two years ago. The former Google executive revamped many of Yahoo's Web products but its ad sales business continues to struggle, while rivals such as Google, Facebook and Twitter post strong revenue growth.

Revenue from display ads, which account for roughly 40 percent of Yahoo's overall sales, increased just 2 percent year-on-year to $453 million, excluding partner fees. That meager growth follows several consecutive quarters of decline in the display ad business.

Shares of Yahoo were up at $36.90 in afterhours trading.

"It's really Alibaba driving things," said Macquarie Research analyst Ben Schachter. Yahoo's core business improved slightly in the first quarter, but "really the story here is Alibaba and the somewhat unexpected re-acceleration" of its revenue growth.

The Chinese company's revenue increased 66 percent to $3.06 billion in the fourth quarter, according to slides that Yahoo posted on its investor relations website Tuesday, faster than the 51 percent growth in Alibaba's third quarter.

Yahoo reports the Chinese company's financial results one quarter later than its own.

Alibaba, valued at more than $140 billion, is expected to go public later this year in the United States in the largest IPO since Facebook's debut in 2012.

Yahoo's revenue, excluding fees paid to partner websites, came to $1.087 billion in the first quarter, up from $1.074 billion in the year-ago period. Analysts polled by Thomson Reuters I/B/E/S had expected adjusted revenue of $1.077 billion.

It had net income of $311.6 million, or 29 cents a share, in the first quarter. It earned 38 cents a share excluding certain items.