Good news for Marissa Mayer, as Yahoo posts strong earnings

Posted: 10/21/2014 01:50:50 PM PDT

Updated: 10/21/2014 01:56:33 PM PDT

Yahoo turned in a third quarter earnings report Tuesday that beat Wall Street's expectations, and gives CEO Marissa Mayer some bottom line results to back up her strategy of acquisitions, and emphasis on mobile and media to lift the pioneering Internet company out of the doldrums.

The Sunnyvale internet giant reported sales of $1.148 billion, a 1 percent increase from the same quarter last year. Fully reported earnings of 28 cents a share easily beat analysts' estimates. Earnings after excluding certain expenses were 30 cents a share.

Analysts surveyed by Thomson Reuters had expected fully reported earnings per share of 22 cents on sales of $1,044.9 billion.

'We achieved this revenue growth through strong growth in our new areas of investment -- mobile, social, native and video -- despite industry headwinds in some of our large, legacy businesses,' Mayer said in a statement.

Revenue from the company's big push into mobile topped $200 million, and the company estimates gross revenues of $1.2 billion this year from mobile.

'We have invested deeply in mobile and we are seeing those investments pay off,' Mayer said.

The earnings report is good news for Mayer, who has been under pressure from investors.

In a letter last month to Mayer and her board of directors, activist investor Jeffrey Smith said that his Starboard Value fund had taken a significant position in Yahoo stock. His letter criticized Mayer's 'aggressive acquisition strategy' and urged her and her board to consider buying AOL, an Internet pioneer that also has been struggling in recent years.

Mayer responded with a promise to review Smith's letter and proposal and get back to him. Their first meeting will take place later this month, according to reports.

Since she took over, Yahoo has acquired more than 40 companies, among them small startups that were acquired for their engineering talent rather than revenue potential. Her biggest purchase so far was social networking company Tumblr, acquired last year for $1.1 billion.

Yahoo's stock has soared under Mayer, who took over as CEO in July 2012 with the encouragement of another activist investor Daniel Loeb of the hedge fund Third Point. Loeb cashed in most of his Yahoo holdings in July of last year, more than doubling his investment.

But while Yahoo's shares have more than doubled under Mayer, its earnings have been flat, a concern of major shareholders. There are worries that its share price might decline following the public offering of Alibaba, the Asian e-commerce giant. Yahoo--- a major Alibaba shareholder -- was a proxy for investors who wanted to invest in Alibaba until its market debut. Now they can buy Alibaba shares directly.

The upside of that IPO is that Yahoo realized $9.4 billion from the sale of 140 million of its Alibaba shares, and continues to hold another 383.5 million shares worth about $33 billion. Yahoo said it plans to return half of the $9.4 billion to investors, or about $3 billion after taxes.

But investors like Smith are are challenging how Mayer plans to invest the rest of the money from the Alibaba stock sale and for realizing the value of the Alibaba stock Yahoo still holds.

In his letter to Yahoo, Smith was dismissive of Mayer's acquisition strategy which, he said, has resulted in $1.3 billion of capital spent since the second quarter of 2012 'while consolidated revenues have remained stagnant'' and earnings have declined.

He had his own ideas about acquisitions. A combination with AOL could result in $1 billion in 'cost synergies' the two companies could realize, he said.

And a Swiss adviser to major investors, Alternative Investment Management and Research, has urged Yahoo to merge with SoftBank, a Japanese telecommunications and Internet company that owns a stake in Yahoo Japan, and put its chief Masayoshi Son in charge of handling the combined company.

Contact Pete Carey at 408-920-5419 Follow him on http://ift.tt/1jhUr9a

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