Yahoo Display Ad Push Off to Slow Start

Marissa Mayer's goal of growing Yahoo Inc.'s core business of display ads this year is off to a slow start.

On Tuesday, Yahoo reported its revenue from display ads, excluding traffic costs, dropped 7% to $381 million in the first quarter, the fourth straight quarterly decline.

Nearly three years into her tenure as chief executive, Ms. Mayer is still struggling to find an engine for growth at the aging Internet portal. Fast-growing areas like mobile and video, where the CEO has directed most of Yahoo's efforts, still fail to offset the declines in its legacy business of desktop display advertising.

Investors are putting more scrutiny on Yahoo's core business as the company prepares to spin off its shares of Chinese e-commerce giant Alibaba Holding Group Ltd. in a transaction scheduled for later this year.

In a memo to employees earlier this year, Ms. Mayer predicted that "2015 is the year that we return our display revenue to growth."

Yahoo is expected to see its share of the U.S. display-ad revenue market slip to 4.6% of the total this year, down from 5.5% in 2014, according to eMarketer Inc. The online ad researcher predicts Twitter Inc. will surpass Yahoo this year to become the third-largest seller of U.S. display ads, trailing Google Inc. and Facebook Inc.

Under pressure from activist investor Starboard Value LP to cut costs, Yahoo has cut 700 to 900 employees since last October, mostly from offices outside the U.S.

Yahoo's total operating expenses rose 19% to $1.31 billion in the first quarter.

The company's first-quarter profit was $21.2 million, or 2 cents a share, down from $311.6 million, or 29 cents a share. Excluding certain items, the company per-share earnings fell to 15 cents a share from 38 cents a share.

Revenue, minus commissions paid to search partners, fell to $1.04 billion from $1.09 billion.

Analysts, on average, were expecting earnings of 18 cents a share on revenue of $1.06 billion, according to Thomson Reuters.

Yahoo's shares, which are up 22% over the past year but down 12% in 2015, dropped 1.4% to $43.87 in after-hours trading.

Tess Stynes contributed to this article.

Write to Douglas MacMillan at [e-mail]

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