Yahoo aims to bolster search revenues with Google deal

Yahoo aims to bolster search revenues with Google dealYahoo has struck a deal with Google in an attempt to bolster its search revenues as chief executive Marissa Mayer hunts for ways to turn round the business.

The Silicon Valley company, which reported third-quarter revenues and earnings that missed expectations on Tuesday, said it would send an unspecified share of its traffic to the world’s largest search engine and allow Google’s search advertising platform AdSense to generate both desktop and mobile revenue on its behalf.

The deal will be subject to a review by antitrust authorities including the US Department of Justice, which prevented a full Yahoo-Google search alliance in 2008 when its threat of legal action led the companies to call off the deal at the eleventh hour. The agreement will not extend to Europe, where Google owns an even greater share of the market. Ms Mayer said the deal offered “significant, additional flexibility” for Yahoo.

Yahoo will continue to send 51 per cent of its search traffic to Microsoft’s Bing and use its own search products but one analyst from Citigroup estimated that if it sent all the remaining traffic to Google, it could boost search revenue by about $200m to $400m a year, or 10 to 18 per cent.

Ms Mayer renegotiated Yahoo’s agreement with Microsoft earlier this year to give the company more flexibility on which partners it can work with on search. It had been working with Google to test a potential tie-up for months.

Yahoo’s core business missed expectations, sending its shares, which have fallen 35 per cent so far this year, down a further 1.8 per cent in after-hours trading in New York.

Yahoo issued fourth-quarter guidance that disappointed investors, predicting GAAP revenue of $1.16bn to $1.2bn, below the average analyst forecast for $1.3bn, and adjusted earnings before interest, tax, depreciation and amortisation of $160m to $200m.
Yahoo aims to bolster search revenues with Google deal

Ms Mayer said the outlook was “not indicative of the performance we want” and suggested Yahoo would narrow its focus to fewer products and push for cost savings next year.

Revenue rose 6.8 per cent to $1.2bn, missing the consensus forecast of $1.3bn. The cost of driving people to its websites, known as traffic acquisition, rose from $54m in the same quarter last year, to $223m.

The Silicon Valley company reported third-quarter earnings per share of 15 cents, on a non-GAAP basis, compared with the average analyst estimate of 17 cents. Net income was $76m, down from $6.7bn last year as Yahoo no longer receives payments from its stake in Alibaba, the Chinese ecommerce group.

Ms Mayer, who joined as chief executive more than three years ago promising a turnround, said that spinning off the 15 per cent stake in Alibaba, worth $27bn at Tuesday’s closing price, was Yahoo’s “top priority”.

The spin-off, designed to give shareholders a tax efficient way of accessing their shares in the Chinese e-commerce group, has been on shaky ground since the US tax authorities made it clear that they were “concerned” about deals of this kind.

But Yahoo decided to press ahead, even without a “private letter” ruling that would guarantee the company would not be hit with an extra tax bill.

“This is an important moment for the company and we continue to strive to complete the spin [off] as quickly as we can,” she said.

Yahoo said it had appointed Lisa Utzschneider as chief revenue officer during the quarter, to lead the global sales organisations. Analysts have raised concerns that several key senior managers have left Yahoo this year.

Jacqueline Rese, one of the Yahoo executives overseeing the spin-off, announced her departure to the payments company Square on Monday.

Source: Financial Times
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