Yahoo’s 3Q Report Unlikely to Show Revenue Growth

Yahoo’s third-quarter earnings report is likely to serve as a reminder that the company’s rising stock price has had little to do with how the business has been faring since Marissa Mayer became CEO 15 months ago.

WHAT TO WATCH FOR: The results, due out after the stock market closes Tuesday, are expected to show that Yahoo Inc. is still struggling to sell more online advertising, even though marketers have been shifting more of their marketing budgets to the internet for years. Most of that money has been flowing to Google Inc. — a company that Mayer helped build into a powerhouse — and online social network Facebook Inc.

As Twitter Inc. prepares to go public, its online communications service is gearing up to sell more advertising and possibly siphon more revenue away from Yahoo.

Yahoo’s quarterly revenue has been only slightly rising or dipping under Mayer, who joined the Sunnyvale, Calif., company in July 2012. Meanwhile, the overall internet advertising market has been growing rapidly. Total internet ad spending climbed 18 percent during the first half of this year, while Yahoo’s ad revenue declined 3 percent.

BACKGROUND: Despite Yahoo’s ad struggles, its stock has more than doubled under Mayer because the company owns a major stake in China’s Alibaba Group, an internet conglomerate that’s growing rapidly. Alibaba is expected to be valued at more than $100 billion in an initial public offering that could occur next year, and Yahoo’s stock has become a way to get an early piece of the action.

Analysts have estimated that Yahoo might eventually collect up to $20 billion by selling the rest of its Alibaba holdings. Yahoo has already reaped $7.6 billion from selling nearly half its stake in Alibaba last year. Yahoo used most of that money to buy back its own stock.

Mayer has publicly acknowledged that the Alibaba investment, which was engineered in 2005 by Yahoo co-founder Jerry Yang and former CEO Terry Semel, has helped make her look good. Yahoo’s stock recently has been hovering between $33 and $35, its highest levels in nearly six years.

Mayer’s charisma and efforts to improve employee morale also have created positive buzz that has helped lift the company’s stock. She also has been bringing in more engineers with expertise in building applications for the smartphones and tablets that have become a major thoroughfare for online traffic. Much of the mobile help has come through the more than 20 acquisitions made under Mayer so far, including a $1.1 billion purchase of internet blogging service Tumblr earlier this year.

WHY IT MATTERS: Despite the company’s lackluster financial results, Yahoo’s services remain among the most popular destinations on the internet, with about 1 billion combined visitors each month. If Mayer can boost revenue and keep rolling out new products, it should spur competition that could produce more options for consumers and advertisers.

WHAT’S EXPECTED: Analysts polled by FactSet project adjusted earnings of 33 cents per share on revenue of $1.08 billion, after subtracting Yahoo’s ad commissions.

LAST YEAR’S QUARTER: Yahoo earned $3.2 billion, or $2.64 per share, on revenue of $1.2 billion. The earnings included a nearly $2.8 billion windfall from selling a portion of Yahoo’s Alibaba stock. If not for that one-time gain, Yahoo would have earned 35 cents per share in the period. After subtracting ad commissions, Yahoo’s revenue in last year’s quarter stood at $1.09 billion.