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Is Yahoo! Finally Back?

By Rick Munarriz - Updated Apr 6, 2017 at 1:28PM

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The popular portal has a mixed quarter, but we're talking about mixed greens.

Yahoo! (Nasdaq: YHOO) dealt shareholders another mixed bag with yesterday's first-quarter report.

The bad news? Revenue before traffic acquisition costs fell by 2% to $1.13 billion, short of the $1.17 billion that analysts were expecting. The top line was weighed down by an 11% slide in fee revenue and a surprising 14% dip in search advertising.

The good news? Earnings nearly doubled to $0.15 a share, after backing out the positive one-time items related to Microsoft's (Nasdaq: MSFT) transition-cost reimbursements and its January sale of Zimbra to VMware (NYSE: VMW).

Perhaps the most positive development at Yahoo! is that its display-advertising business rose by 20% during the period, and up a sharp 24% in guaranteed display.

This is huge news. Yahoo! has been shedding some of its fee-generating assets, including the pending sale of HotJobs to Monster Worldwide (NYSE: MWW). Its search deal with Microsoft kicked in two months ago, drawing clouds over the search advertising business that seems to rock for Google (Nasdaq: GOOG) and Baidu (Nasdaq: BIDU) but has never lived up to its potential for a stand-alone Yahoo!

In other words, display advertising is going to be the name of the game at Yahoo! in the future, and momentum is clearly working in its favor there. It also has $1.3 billion in cash and another $1.9 billion in short-term securities in case it needs to beef up its organic growth on that front.

Google and Baidu are no doubt singing the praises of paid search, given the companies' impressive margins, but let's not dismiss the potential of graphical ads slapped on content pages as the advertising market bounces back.

Yahoo! and AOL (NYSE: AOL) have hitched their wagons to the display niche. Doing so was probably a poor choice during the market downturn, but those wagon wheels are finally starting to turn.

Is Yahoo! finally back? Share your thoughts in the comments box below.

Microsoft is a Motley Fool Inside Value recommendation. Google and VMware are Motley Fool Rule Breakers selections. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services free for 30 days. One of them may be just what you're "searching" for.

Longtime Fool contributor Rick Munarriz owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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