Yahoo sees 60% revenue growth in online video interests

Search engine website and online video provider Yahoo's online video interests saw 60 percent revenue growth in the second quarter, a rise that CEO Marissa Meyer credited partly with its two new ad formats, native video ads and video app-install ads.

"A recent study showed that viewing video native ads on Yahoo! increased brand favorability up to 50 percent, and purchase intent up to 28 percent," Meyer said during the company's earnings call. Gemini native ads, for example (which can promote ads across Yahoo's platforms and apps), pulled in $130 million, a 19 percent sequential increase. "Part of this growth is driven by significant supply through syndication via the Flurry platform," she noted.

Yahoo landed on "the high end" of guidance for revenues in the second quarter, posting GAAP revenue of $1.24 billion, a 15 percent increase and the "most substantial" growth in nearly a decade. But the cost of those revenues jumped significantly, from $44 million a year previously to $200 million in the quarter.

The company also saw a $45 million loss from operations, a flip-around from its $38 million income from operations during Q2 2014. It recorded a net loss of $22 million, down from a $270 million net profit one year ago. GAAP net EPS (earnings per share) came in at a 2-cent loss, down 28 cents year-over-year, with non-GAAP EPS at 16 cents, down 21 cents year-over-year.

Still, there were additional bright spots in the company's earnings report, particularly from its Mavens initiative (which stands for mobile, video, native and social).

"Our Mavens investment businesses across mobile, video, native and social grew to nearly $400 million in revenue this quarter, delivering 60 percent GAAP growth year-over-year," Meyer said in the earnings release. "Further, our display business saw the most substantial revenue growth since 2010. Yahoo's transformation continues to make great progress."

As other Web-centric companies are doing right now, Yahoo is putting more resources into building its revenue stream, particularly around advertising and its online video division, and hoping that investors will weather an ongoing period of shaky earnings.

"As I've said before, with the right people, we will build great products. Those products will drive increased traffic, leading to greater advertiser interest and demand and ultimately revenue. This is a key operating principle in our transformation, and the reason we continue to hire and retain great people while simultaneously improving our products for our users and advertisers," Meyer said in an earnings call with investors and analysts.

Yahoo stayed busy in the digital content front during Q2: It announced that it will live-stream a regular-season NFL game, and rolled out a "refreshed" Flickr experience with photo and video sharing capabilities.

The company's core search engine, which makes up half of Yahoo's business, is still having an effect on earnings, too.

Much of Yahoo's cost of revenues this quarter came as it began paying more money to acquire users from entities like Mozilla and Oracle, The Wall Street Journal noted. Yahoo pays a portion of its revenue from each search to these partners. The increased cost in this segment isn't a good sign, according to RBC analyst Mark Mahaney, in the article.

Meyer defended the partnerships as being essential distribution and marketing vehicles for Yahoo products. Both "are large search deals that we believe will enhance and stabilize our market share. But they obviously run at a lower margin than our organic traffic," she said on the earnings call. However, "They place our enhanced search in front of millions of users and help keep our search marketplace vibrant."

Yahoo expects its third-quarter revenues to come in lower than expected, with EBITDA between $200 million and $400 million.

Shares of Yahoo were down 0.81 percent, or 31 cents, in midday trading on the Nasdaq.

For more:
- see the earnings release
- WSJ has this story (sub. req.)
- see this Seeking Alpha transcript

Related articles:
Yahoo's Utzschneider on the potential of cross-platform advertising
NFL confirms Yahoo will live-stream regular-season game
Yahoo adds comScore, DoubleVerify, other measurement options to combat advertising fraud

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