Business picks up for Yahoo, but long road ahead

Yahoo has forecast a modest increase in revenue for the current year as it overhauls its websites. However, Chief Executive Marissa Mayer warned it would be a long journey to revive the internet company's fortunes.

In Yahoo's first financial outlook since Mayer became CEO in July, the company outlined a plan to trigger a "chain reaction of growth" by overhauling a dozen of its online services to increase the amount of time users spent on its websites.

It also pointed to strength in its search advertising business and progress made in improving its internal operations.

pquote]What was clear from the call is that this is a long-term turnaround story

Yahoo's shares were 3 percent higher in after-hours trade after the revenue projection was disclosed during an analysts conference call, shedding some ground after earlier rising as much as 4.5 percent.

But weakness in Yahoo's display ad business, which accounts for roughly 40 percent of the company's total revenue, caught some analysts by surprise.

"While the road to growth is certain, it will not be immediate," said Mayer, a former Google executive and Yahoo's third full-time CEO since September 2011.

Yahoo said that revenue, excluding fees it pays to partner websites, will range between $4.5 billion and $4.6 billion in 2013, implying an annual growth rate of 0.7 percent to 3 percent.

Finance Chief Ken Goldman also warned investors to expect "an investment phase" in the first half of the year, which he said would impact profit margins.

"What was clear from the call is that this is a long-term turnaround story," said Macquarie Research analyst Ben Schachter. "We shouldn't expect anything to just snap back and correct itself."

During the fourth quarter, Yahoo's net revenue increased 4 percent year-on-year to $1.22 billion, as search advertising sales offset a 10 percent decline in the number of display ads sold on Yahoo's core properties.

Mayer said the decline was the result of less activity by visitors to its popular websites, such as its Web email service, and to a lesser extent due to users accessing the Web on smartphones, where Yahoo's ad business is not as strong.

Efforts to revamp its mobile properties, begun last year with a redesign of the photo-sharing service Flickr, remain on track, said Mayer, noting that Yahoo now has 200 million monthly mobile users.

"From a monetization perspective this is still a very nascent source of revenue for us. With any platform shift, revenue always followed users and mobile will be no different," she said.

Mayer took over after a tumultuous period at Yahoo in which former CEO Scott Thompson resigned after less than 6 months on the job over a controversy about his academic credentials and in which Yahoo co-founder Jerry Yang resigned from the board and cut his ties with the company.

Yahoo's stock has risen roughly 30 percent since Mayer took the helm, reaching its highest levels since 2008.

Part of the stock's rise has been driven by significant stock buybacks, using proceeds from a $7.6 billion (4.8 billion) deal to sell half of its 40 percent stake in Chinese internet company Alibaba Group, said Sameet Sinha, an analyst with B. Riley Caris.

Yahoo said it repurchased $1.5 billion (95.4 million) worth of shares during the fourth quarter.

The company's fourth-quarter net income was $272.3 million (173.2 million), or 23 cents (14 pence)per share, versus $295.6 million(188 million), or 24 cents (15 pence) per share in the year-ago period.

Excluding certain items, Yahoo said it had earnings per share of 32 cents, versus the average analyst expectation of 28 cents according to Thomson Reuters I/B/E/S.

For the first quarter, Yahoo said it expects revenue, excluding partner website fees, of $1.07 billion (680.9 million) to $1.1 billion (699.9 million), trailing the $1.1 billion (699.9 million) that Wall Street analysts expect on average.

Shares of Yahoo were up 59 cents (37.5 pence) at $20.90 (13.29) in after-hours trading on Monday.