📺 Stream EntrepreneurTV for Free 📺

Yahoo Fails to Soothe Investors' Fears About the Company's Future The company boosted revenue slightly, but lost money due to traffic costs. And it failed to provide any outlook for its massive Alibaba spinoff.

By Mathew Ingram

entrepreneur daily

This story originally appeared on Fortune Magazine

Yahoo is a giant technology company, with annual revenues of about $4.5 billion, but no matter how well it does in the core aspects of its business—mobile, search, advertising, etc.—all investors seem to care about are the parts of its business that it doesn't control. At the top of that list is the company's 15% holding in Chinese Internet firm Alibaba, and the crucial question of whether Yahoo will be allowed to spin that off without a huge tax bill.

This is a key factor both for the company and for its investors, because the Alibaba stake—which Yahoo acquired in 2005 for about $1 billion—is now worth an estimated $30 billion at current market prices. That means it accounts for more than 80% of Yahoo's total market value of $37 billion.

The company announced last week that it has filed plans with the SEC to create a new holding company called Aabaco, and intends to spin its Alibaba shares off into that entity. But first, it needs a ruling from the Internal Revenue Service as to whether it will have to pay taxes on the spinoff.

When Yahoo sold some of its shares back to Alibaba in 2012, it had to swallow a tax bill of $2 billion, and estimates are that the bill for the rest of its stake could be as high as $12 billion.

Unfortunately, the company provided little or no guidance on its earnings call Tuesday about whether it is likely to get a favorable decision or not. Yahoo CEO Marissa Mayer said the company was "making progress" with its application, and chief financial officer Ken Goldman said he believed there was a "strong and compelling" argument for the spinoff, but the ultimate decision remains a mystery.

The rest of Yahoo's business, meanwhile—the part it theoretically does control—had a mixed quarter. Mayer made much of the fact that adjusted revenue (which excludes traffic-acquisition costs) grew by 15%, the largest increase in almost nine years. But while that squeaked past Wall Street analysts' estimates of $1.03 billion for the quarter, the company's earnings did not: Adjusted profit came in at 16 cents a share, sharply lower than the 18 cents analysts were expecting.

The culprit was the same as it was in the previous quarter, namely traffic-acquisition costs—the deals that Yahoo and other search companies cut with browser companies and software providers to drive traffic to their search engines. A rise in TAC pushed the company to a net loss of $22 million or 2 cents a share, compared with a profit in the same quarter last year of $270 million or 26 cents a share. And Mayer said that the outlook for the rest of the year is also weak, and that higher costs will put revenue "under pressure."

On the bright side, Mayer said that Yahoo's revenue from mobile reached $252 million, an increase of 54% year-over-year, and mobile accounted for 22% of the company's ad-supported revenue in the most recent quarter. Investors, however, seemed preoccupied with the rise in costs and earnings miss: Yahoo's stock fell in after-hours trading and is now down 20% since the beginning of the year.

Mathew Ingram

Senior writer

Mathew Ingram is a senior writer at Fortune. His focus is media and technology.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Starting a Business

I Wish I Knew These Four Things Before Starting My Own Business

Starting a business is hard work to say the least. These are four lessons I wish someone had shared with me before going solo, so I'm here to share them with you.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Social Media

How To Start a Youtube Channel: Step-by-Step Guide

YouTube can be a valuable way to grow your audience. If you're ready to create content, read more about starting a business YouTube Channel.


Add Some Life to the Office with $60 off This Bluetooth Speaker

This TREBLAB speaker provides 360-degree HD sound and high-powered connectivity.

Business Solutions

Organize Your Podcasts and Audio Content with This $40 Plan

Player FM lets you organize and sync podcasts across different platforms in one place.

Thought Leaders

Need More Confidence? These 10 Bestselling Books Will Help Improve Your Self-Esteem

Self-esteem can be hard to come by and even harder to maintain. To give yourself a boost, try these authors' words of wisdom.