After Acquisitions Aplenty, Yahoo Q2 Beats Forecasts

yahoo earnings marissa mayer ceo
AFP/Getty ImagesYahoo CEO Marissa Mayer

By Rip Empson

The day for purple exclamation points (or lack thereof) has arrived. Yahoo just released its earnings report for the second quarter of 2013, with better-than-expected (non-GAAP) net earnings of $386 million, or 35 cents per share. Revenue (excluding traffic acquisition costs) was flat compared to last year, at $1.07 billion.

Marissa Mayer just passed her one-year anniversary as CEO of Yahoo, and so far, expectations have been fairly low for the company, which has struggled mightily in recent years. Mayer has been busy instituting ambitious plans for the company, beginning with a memorable acquisition spree that seems to have included every forgotten or "B List" startup on the planet.

But Yahoo's future is still decidedly up in the air, and many remain unsure if Mayer can lead Yahoo through such an epic turnaround. Nonetheless, enthusiasm has begun to build, as the company's shares have been soaring of late. As a result, analysts predicted that the company would report revenue of $1.08 billion and 30 cents for EPS (up 11 percent for the year). Wall Street typically evaluates Yahoo on an ex-TAC basis, including the cost of acquiring traffic.

Ex-TAC, revenue was $1.07 billion for the quarter. To break that down: In turn, while search revenue actually overtook Yahoo's display revenue last quarter, the company was back to its usual trend this quarter. Search revenue was $403 million for Q2 (a 5 percent increase), while display revenue came in at $423 million (a 12 percent decrease). All in all, Yahoo had $4.8 billion in cash and securities in the second quarter, down from $6 billion in the same period last year.

GAAP display revenue was $472 million for the second quarter of 2013, a 12 percent decrease compared to $535 million for the second quarter of 2012 and the number of display ads sold dropped as well, not necessarily a good sign. That being said, paid clicks on Yahoo's search advertising increased 21 percent in Q2.

As Mayer begins her second year as CEO of Yahoo -- while her leadership is seen as crucial for turning the company around -- expectations are going to increase. She's been doing her best to tamp down expectations, and that will continue to work for a little while, but eventually investors are going to want to see real results -- and growth. Yahoo has been showing some slight gains on Google and Microsoft in search, but it's got plenty of work to do elsewhere.

"I'm encouraged by Yahoo!'s performance in the second quarter," Mayer said as part of today's earnings announcement. "Our business saw continued stability, and we launched more products than ever before, introducing a significant new product almost every week."

"From the new Yahoo! News, the new Yahoo! Sports app, the redesigned Yahoo! search, the new Flickr, the new Yahoo! Mail for tablet, the Yahoo! Weather app, our new Yahoo! app with Summly," she continued, "this quarter drove tremendous improvements in our product line and our users responded with increased usage and engagement."

As a result of its unprecedented acquisition spree of late, Yahoo has added a ton of engineering and product talent in a relatively short amount of time, and -- it would like to have you believe -- that it's been picking these startups up at rock bottom prices. By doing so, Yahoo and Mayer expect that it will be able to rebrand its mobile products and begin moving more aggressively into social marketing segments, along with reaching broader demographics and just generally putting a more attractive (inter)face to the world.

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But we also got a chance to see just how much Yahoo is willing to spend to make its turnaround (and all these acquisitions) possible. During the second quarter alone, Yahoo repurchased 25 million shares for $653 million and used a net $1 billion in cash for acquisitions -- including a net $970 million to acquire Tumblr.

These significant costs were offset, however, by the $846 million it received from redeeming its Alibaba shares. By the way, sale of its ownership in Alibaba is expected to net Yahoo close to $20 billion over the years to come. So for anyone wondering how the company was planning to finance its acquisition spree: Say "hello" to Alibaba, Yahoo's financier.