Yahoo needs to go Hollywood to stay profitable
SAN FRANCISCO — Now that Yahoo has reported yet another quarter of flat-to-lower sales, the clock showing how much time CEO Marissa Mayer has to produce revenue growth is ticking more loudly.
The Internet giant late Tuesday said sales, minus traffic acquisition costs, fell 4% to $1.04 billion, missing forecasts — the seventh time it's done that in the last nine quarters, according to FactSet. Total sales were flat.
It also reported an operating loss, meaning the businesses that will remain after Yahoo spins out its Alibaba stake later this year won't be enough to carry the company.
Once Yahoo says goodbye to the lucrative China investment, Mayer will need to find growth to attract investors.
If not, she may have to cut more jobs to save the company's stock from Wall Street bears.
To avoid that unpleasant fate, Yahoo (YHOO) may want to use some of its Alibaba proceeds to go Hollywood.
That's where Netflix has shown there's monster growth to be found in original, dramatic shows delivered exclusively over the web, like the hit House of Cards.
Sales of video advertising on these Internet shows is exploding so fast that Amazon.com is funding its own shows to get in on the action.
Yahoo also carries such entertainment, including its own original series, Sin City Saints.
Yet the company needs more of it to move its overall revenue meter, as it faces stiff competition in the video ad market from Google, Facebook and others.
Even though Yahoo's search revenue soared 20% from a year earlier, thanks to a partnership with Mozilla, its costs to acquire web traffic soared more than threefold.
Product-development costs surged 22% as Mayer is beefing up Yahoo's mobile offerings.
Yet first-quarter mobile revenue remained less than a third of sales from desktop ads, a market where prices are falling.
Only a $100 million gain on Yahoo's equity interests, including Alibaba, kept the company in the black.
If the company's investments in technology, news and other websites can't produce enough growth to operate profitably, Mayer may find that what Yahoo needs is more digital entertainment.
John Shinal has covered tech and financial markets for 15 years at Bloomberg, BusinessWeek, the