Yahoo bears hone in on display weakness; bulls focus on Alibaba

|By:, SA News Editor

"It's remarkable how bad" Yahoo's (YHOO -5.1%) Q2 ad sales figures were, says Pivotal Research's Brian Wieser. "Such are the problems when there is no head of ad sales." Marissa Mayer effectively took over the job after COO Henrique de Castro was fired (following a tumultuous stint) in January.

The 24% Y/Y drop in Yahoo's display ad prices (much worse than Q1's 5%) is getting a lot of attention. Soft demand for banner ads relative to other formats (search, video, native ads) is seen as a culprit, as are delays in rolling out Yahoo's Ad Manager Plus ad-buying platform.

Marissa Mayer mentioned on the CC (transcript) Yahoo "took extra time to ensure [Ad Manager Plus] was delivering for our advertisers," during which time activity on the older Genome platform slowed. She added Yahoo saw a "lower-than-expected contribution from premium advertising, resulting in an unfavorable mix shift."

On the bright side, Mayer stated both mobile search and display ad sales more than doubled Y/Y. Yahoo's new Gemini platform (integrated mobile search and native ad purchases) now accounts for half of its U.S. mobile display revenue.

Sell-side bulls argue Yahoo's business challenges are priced in, and that investors should keep their focus on Alibaba. MKM estimates Yahoo's Alibaba stake is worth $29/share, and expects Alibaba's IPO roadshow to boost investor enthusiasm.

CFO Ken Goldman says Yahoo expects its Alibaba IPO share sale (now just 140M shares) to be "fully taxed," but is still exploring "tax-efficient structures" for the rest of its stake.