Yahoo is regaining its appeal among investors a lot faster than with the online advertisers who generate most of its revenue but the Internet company's third-quarter numbers released Tuesday are the latest to underscore the challenges facing CEO Marissa Mayer even as Yahoo's stock continues to soar under her leadership. The shares have more than doubled since Yahoo lured Mayer away from rival Google Inc. 15 months ago, largely because investors prize Yahoo's 24 per cent stake in Chinese Internet star Alibaba Group Holding.
Alibaba is already making far more money than Yahoo while growing at a rapid pace that bodes well for the future. Yahoo is leaning on Alibaba and another investment in Yahoo Japan for most of its income, a trend highlighted again in the latest quarter.
Yahoo Inc., meanwhile, is still struggling to revive its revenue growth even though marketers are spending more on online ads. Most of that money, though, is flowing to search leader Google and social networking front-runner Facebook Inc. Both of those companies have built addictive services and networks that have proven to be more effective marketing vehicles.
After subtracting the commissions paid to its partners, Yahoo's ad revenue during the three months ending in September dipped by 2 percent from the same time last year.
"It was a pretty dismal quarter," said BGC Financial analyst Colin Gillis. "They are very fortunate to have Alibaba."
A change in the way Yahoo will eventually have to sell its Alibaba holdings seemed to please investors. Under a new arrangement announced Tuesday, Yahoo will now be required to sell 208 million of its Alibaba shares in an IPO widely expected to occur next year. That's down from 261.5 million under a deal reached 17 months ago. The revised terms will be a boon for Yahoo if Alibaba's stock soars above its IPO price, as often happens with promising technology stocks.
Yahoo's stock gained 26 cents to $33.64 in extended trading after Tuesday's news came out.
Mayer, 38, is pleading for patience to get Yahoo's own business in better shape, saying it may take another year or two before Yahoo's sales are growing at