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Yahoo’s financial about-face could be just what the company needs as it faces pressure from investors.
After receiving criticism of late from activist investor Starboard Value, which urged the company to merge with AOL, Yahoo CEO Marissa Mayer was clear about her plan for the company during a conference call with investors, noting that she plans to “continue our relentless pursuit of a path to return this iconic company to greatness.”
The tech giant announced third-quarter revenue after ad commissions, the metric most analysts focus on, of $1.09 billion, up 1 percent from the same period last year. Adjusted earnings rose to 52 cents per diluted share. Both metrics beat Wall Street’s expectations. Analysts polled by Thomson Reuters were anticipating revenue of $1.04 billion on earnings of 30 cents per share.
In July, Yahoo reported that second-quarter revenue had dropped 3 percent to $1.04 billion, and adjusted earnings fell just short of Wall Street’s expectations at 37 cents per share.
Mayer attributed the company’s third-quarter performance to mobile growth, noting that mobile revenue was more than $200 million and estimating that gross revenue in mobile will exceed $1.2 billion this year. The company launched several new apps during the quarter, including those for Yahoo Finance, Yahoo News Digest and Yahoo Mail.
“We have invested deeply in mobile, and we are seeing those investments pay off,” she added. “Not only are our mobile products attracting praise and engagement from users and industry awards, they are generating meaningful revenue for Yahoo.”
The solid quarter comes as Mayer has faced increased pressure and criticism after her first two years at the company. In an open letter, Starboard CEO Jeffrey Smith urged Yahoo to not only merge with AOL, but also halt its “aggressive acquisition strategy, which has resulted in $1.3 billion of capital spent since the second quarter 2012 while consolidated revenues have remained stagnant.”
Yahoo has indeed been on a buying spree since Mayer became CEO in 2012. In the third quarter, the Sunnyvale, California-based company completed its acquisition of mobile data analytics firm Flurry. Mayer defended the company’s acquisitions during the earnings call, noting that Yahoo will continue to make purchases in three key areas: talent acquisitions; building-block acquisitions, such as Summly and RayV; and strategic acquisitions, such as Tumblr and Flurry.
“Acquisitions have not been a choice for Yahoo, in my opinion, but rather a necessity,” she said, adding that many of these purchases have been to update “aged” legacy technology.
Mayer’s buzziest acquisition to date was Tumblr, which Yahoo purchased in 2013. She noted that the blogging platform has grown to more than 420 million users and is expected to reach more than $100 million in revenue in 2015.
The company has counted on its stake in Alibaba to fund its acquisitions and mobile investments, and received $9.4 billion in pre-tax proceeds after selling 140 million shares of the Chinese e-commerce giant during its initial public offering.
During the call, Mayer also outlined Yahoo’s move to close eight offices and layoff about 2,000 employees, noting that she’s been focused on “efficiency, effectiveness and excellence” at the company.
Yahoo shares were trading up more than 2 percent, or less than $1, to above $40 during after-hours trading on the Nasdaq.
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