Yahoo Posts Another Loss, Highlighting Hurdles for Potential Buyers--Update

By Douglas MacMillan 

Yahoo Inc. on Monday posted a deep loss that underscores the setbacks facing a potential acquirer of the shrinking internet business.

In what could be its last earnings report as an independent company, Yahoo on Monday said its revenue, minus commissions paid to partners for Web traffic, fell 19% in the second quarter. That is its sixth decline in the past seven periods.

The company is expecting to review a third and potentially final round of bids from suitors of its web properties in the coming days, people familiar with the matter have said, a process that has lasted months and whittled a field of dozens of potential buyers down to a handful of serious contenders.

The remaining bidders, which are expected to include Verizon Communications Inc. and private-equity firm TPG, have expressed concerns about the flagging financial prospects of Yahoo, which continues to cede share of the online-ad market to Alphabet Inc. and Facebook Inc.

On Monday, Yahoo's shares rose 0.8% in after-hours trading to $38.25.

Yahoo's earnings report card comes almost four years to the day after it announced with great fanfare that Marissa Mayer would be chief executive. Ms. Mayer hoped to turn around Yahoo by refreshing the company's talent through acquisitions and by boosting investment in video and web search.

But Yahoo hasn't shown much growth during that time, making it difficult for the company to fetch a high price for its core business. Overall during the quarter, revenue rose 5.2% to $1.31 billion, helped by a change in how the company reports revenue. Without that change, revenue would have declined 15% to $1.06 billion. Analysts had called for $1.08 billion.

The internet company posted a loss of $439.9 million, or 46 cents a share, compared with a year-earlier loss of 2 cents a share. Adjusted earnings were 9 cents a share, just below analysts' expectations of 10 cents.

The segment of Yahoo's business that Ms. Mayer touted would drive the company's growth has slowed dramatically, though it showed an uptick in the latest period. Revenue from "Mavens" -- a financial metric the company introduced last year to track mobile, video, native and social ads -- rose 26% to $504 million. That compares with 6.8% in the first quarter, 26% in last year's fourth quarter, 43% in the third period and 60% in the second quarter of 2015.

Yahoo said it ended the quarter with $7.67 billion in cash, up from $7.1 billion three months earlier.

Yahoo's core business is difficult to value because the majority of its roughly $36 billion market value is attributed to its valuable stakes in Alibaba Group Holding Ltd. and Yahoo Japan. Brian Wieser, analyst at Pivotal Research, estimates the core business is worth about $3.5 billion. Some earlier bids came in as low as $3 billion, people familiar with the process told The Wall Street Journal in May.

The buyer of the core business may ultimately decide not to buy certain assets like real estate and patents. Yahoo has also set aside about 3,000 patents into a subsidiary called Excalibur and hired an investment bank, Black Stone IP, to auction it.

A sale of Yahoo's web properties would likely mark the end of Ms. Mayer's helm as CEO, a tenure marked by high expectations around her turnaround plan and her subsequent failure to produce products that attracted users and advertisers.

Ms. Mayer's decline was accelerated over the past few months amid a battle with activist investor Starboard Value LP. After Ms. Mayer failed to rein in costs, Yahoo's board struck a deal to give Starboard nearly half of its board seats.

Write to Douglas MacMillan at [e-mail]

(END) Dow Jones Newswires

July 18, 2016 17:32 ET (21:32 GMT)

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