Yahoo says its investments in mobile have paid off. The company announced its mobile revenue in Q3 exceeded $200 million, or 20% of its $1.1 billion in GAAP revenue.
Mobile revenue doubled year over year, including both search and display.
Revenue growth on mobile far outpaced user growth. 550 million people are mobile monthly active users across Yahoo and Tumblr, a growth rate of 17% year over year.
“Not only are our mobile products attracting praise and engagement from users and industry awards, they are generating meaningful revenue for Yahoo,” said CEO Marissa Mayer. She expects mobile revenue will exceed $1.2 billion this year.
Yahoo’s story has been all about mobile. It acquired Flurry, a mobile analytics company, a few months ago. Before that, it made dozens of small acquihires generally centered around mobile apps.
This quarter, it relaunched its Mail, news and finance apps.
Mayer emphasized that mobile and desktop monetize completely differently. PCs use banner ads, while “mobile apps monetize through native ads,” Mayer said. Forty-four percent of display ads are native.
Declining Display
Display is a “drag” on Yahoo’s business to the tune of $60 million a quarter, Mayer said.
While Yahoo’s search business posted decent results, with price-per-click rising and click volume flat, display told another story. Once again, Yahoo saw more ads sold at lower prices.
Display revenue ex-TAC declined 6% to $396 million. The number of ads sold increased 24%, while CPMs dropped 24% compared to the same quarter last year. Those percentages line up exactly with the results from last quarter.
Reversing that decline won’t involve magically summoning dollars from PC display. It will involve looking to new areas of the business: mobile, social, video and native. “We’re seeing the new businesses grow, to the point where they will outweigh that [display] drag on the business,” Mayer said.
Acquisition Targets
“We will continue to seek opportunities, and be smart about it,” Mayer said about potential future acquisitions with the billions of cash Yahoo is sitting on post-Alibaba IPO.
“Could we do a programmatic acquisition?” Mayer began her response to an investor question. “We have to have enough scale. There might be an opportunity there. It would be something that would take a lot of consideration, and we have invested a lot in Yahoo Ad Manager Plus,” she said.
There was no mention of the TechCrunch rumor circulated today about Yahoo buying BrightRoll. But BrightRoll certainly possesses the scale Mayer indicated Yahoo was after.
Mayer’s team also played defense, outlining to its investors how it had focused on returning shareholder value over making acquisitions. That was one of the critiques levied by Starboard Value, the activist investor that urged Yahoo to merge with AOL and stop spending money buying companies.
The Future of Ad Revenue
Last quarter, Mayer talked about an “unfavorable mix shift” that saw lower premium, direct sales. This quarter, Yahoo hired Kevin Gentzel as head of sales, whose resume includes time at The Washington Post and Forbes. He will help bolster premium sales, Mayer said.
“Advertising is becoming much more bifurcated,” Mater said. “Premium ads are becoming more premium,” she said. Programs like Yahoo Live, an exclusive concert series with LiveNation, sell out via expensive sponsorships.
On the flip side, there’s programmatic, native and targeted ads. “They are higher in price if you get the right user, lower in price if you can’t get the right users, which is why we’re investing in targeting,” she said.
Yahoo sells mobile native ads on a CPC basis, so optimizing that targeting equals higher revenue for Yahoo. She also expects increased advertiser demand on mobile. The migration to Yahoo Ad Manager Plus, which addresses some of those targeting and efficiency issues, will finish in North America this quarter.
Overall revenue at Yahoo went up by 1%, beating Wall Street’s expectations and sending the stock up a few percentage points in after hours trading.
