Yahoo revenues slip to lowest since 2005: the Woolworths of the net?

It's not looking good for Yahoo.

Its latest financial results, for the second quarter of 2011, showed falling revenues and earnings that were largely down to its stalling displayadvertising business.

Plotted historically, this all starts to look terminal. Overall revenues haven't been this low since the second quarter of 2005, and overlaid with Yahoo's strategic moves away from tech to media, back to tech and then back to media again more recently - as Ross Levinsohn indicated.

Display advertising was once Yahoo's core business, and one it could rely on exploiting. Repeated executive shuffles, low morale and a revenue-sharing agreement in search with Microsoft have all sucked the success out of the company. Yahoo is now faced with sitting back and watching its rivals benefit from the growth in advertising display - not just some serious effort from Google which now outsells Yahoo in display, but also Facebook, which has increased its display ad cost-per-click 74% in the past 12 months. (We can't plot Facebook's revenues here, because it's a private company, but you can bet that it is another of the places that Yahoo's lost revenue has gone to.

Yahoo's stock dropped at the end of the US day but rose again after hours.

Second quarter of 2011:

• Revenues excluding traffic acquisition costs [the amount Yahoo has to pay out to sites for sending it traffic] were $1.076bn, down 5% year on year.• Net earnings was $237m, up from $213m in Q2 2010. • Display advertising revenue rose 2% from Q2 2010, though it had seen 6% growth in Q1.

• Search revenue fell to $371m, down 15% year-on-year.

From the analysts:

• Zacks.com: "Despite some optimism about, growth in search advertising revenue, Zacks acknowledges that Carol Bartz' turnaround plan is moving very slowly. "There are a couple of factors that will likely work against it. The first is the growing importance of Google's display network, which has steadily expanded the market in the small-medium business segment and enabled it to displace Yahoo! as the biggest player in the overall display ad market. We think there is limited satisfaction in the fact that Yahoo remains well positioned at the big players. The writing appears to be on the wall."

• Clayton Moran of Benchmark in Florida: "It's almost hard to believe they can continue to disappoint the Street, which we thought had fairly weak expectations, but they've done that."

• Ben Schachter of Macquire Research: "They are trying to fix a lot a problems that do need to be fixed, but unfortunately as they are fixing those problems, new ones are popping up."

What's the solution?

Carol Bartz (who has been in the top job since January 2009) is running out of time to prove that Yahoo isn't in terminal decline. Every passing quarter - and amid increasingly negative reports - her staff cuts, executive changes, selloffs (goodbye Delicious, now owned by the guys who created YouTube) and ambitious statements on the firm's strategic direction don't seem to be making any difference at all. That search/advertising deal with Microsoft is also failing to help; Yahoo blames that outright for pulling down its revenue figures because of the share it has to give Microsoft.

You can bet that behind the scenes, plans are fairly advanced for amputating Yahoo's most profitable parts - namely its 43% stake in Chinese e-commerce group Alibaba, the high-profile photo sharing site Flickr and its advertising sales infrastructure. The question is, once those are gone, what's left, and to whom does it have any value? Yahoo now only seems good for attracting eyeballs, but they're low-value ones. It's become the Woolworths of the internet.

Now hovering at $14.59 per share, those giddy days of February 2008 when Jerry Yang proudly headed off that $31 per share, or $44.6bn offer, to buy Yahoo. That now seems something of a Pyrrhic victory.

Source: www.guardian.co.uk