The positive signs in a first-quarter report overshadowed a 20 percent decline in Yahoo’s earnings during the opening three months of the year.
The results released Tuesday highlight the contrasting performances of Yahoo’s investment portfolio and the company’s main business of running ad-supported online services. Yahoo Inc. is making most of its money from its holdings in two Asian Internet companies — China’s Alibaba Group and Yahoo Japan.
The company’s 24 percent stake in Alibaba has turned into Yahoo’s crown jewel as the Chinese company prepares to go public. Yahoo’s report provided a tantalizing peek at how rapidly Alibaba has been growing. The numbers covered last year’s fourth quarter because there is a three-month lag before Yahoo books its portion of Alibaba’s earnings.
Alibaba’s fourth-quarter earnings more than doubled from the previous year to $1.4 billion while its revenue surged 66 percent to $3.06 billion.
The performance reinforced hopes that Alibaba’s market value could range somewhere between $150 billion and $200 billion when it goes public. That would put Yahoo in line for a huge windfall when it sells its Alibaba stake, providing money to expand its reach through acquisitions and buy back more of its stock.
The expected gains from the Alibaba investment is the main reason Yahoo’s stock has more than doubled since Yahoo hired Mayer from Google Inc. in July 2012 to revive its ad sales.
Yahoo’s stock gained $2.29, or nearly 7 percent, to $36.50 in Tuesday’s extended trading.
Mayer still hasn’t been able to snap Yahoo out of an advertising funk that began six years ago, although some segments showed modest improvements in the first quarter. In a heartening sign, Yahoo’s display ad revenue crept up by 2 percent from the same time last year, after subtracting commissions from ad partners. That was the first uptick in Yahoo’s first-quarter display ad revenue in three years.
“We believe we are moving from our core business being in decline to modest or stable growth,” Mayer said in a video conference call.
Yahoo earned $312 million, or 29 cents per share, during the first three months of this year. That compared to $390 million, or 35 cents per share, at the same time last year.
If not for special items, Yahoo said it would have earned 38 cents per share. That was a penny above the average estimate among analysts surveyed by FactSet.
Revenue dipped 1 percent from last year to $1.13 billion.
After subtracting ad commission, Yahoo’s revenue totaled $1.09 billion — about $20 million higher than analyst projections.