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September 27, 2017

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After Tumblr deal, Yahoo's Q2 earnings rise 46%, revenue sinks

SAN FRANCISCO -- Yahoo remained stuck in a revenue rut during the second quarter, muting the celebration of CEO Marissa Mayer's first year running the Internet company.

The numbers released Tuesday showed Yahoo Inc.'s earnings are still rising, but they also highlighted the challenges facing the company as it loses ground to rivals Google Inc. and Facebook Inc. in the online advertising market that generates most of their revenue.

Yahoo sold slightly fewer display ads than it did at the same time last year, and the prices that marketers were willing to pay for the space fell by 12 percent, too. The Sunnyvale, California, company made some small strides in the Internet ad market dominated by Google, but it still wasn't enough to prevent Yahoo's revenue from slipping in a quarter when the digital ad market in the U.S. increased by 15 percent, based on estimates by the research firm eMarketer.

Google's second quarter earnings, due out Thursday, are expected to show even more robust growth.

Yahoo's nagging ad headaches initially dragged down the company's stock by more than 2 percent in extended trading, but the selling reversed after management assured investors that it intends to keep buying back the company's stock. The commitment comes after Yahoo had already spent US$3.6 billion buying back about 190 million of its shares since last year, fulfilling a pledge that Mayer made shortly after the company realized a US$7.6 billion windfall from selling nearly half of its stake in Chinese Internet company Alibaba.

The extension of the share repurchases pleased Wall Street because it should help support Yahoo's stock price in the months ahead. Besides helping to fuel demand for the stock, the repurchases help increase earnings per share by reducing the volume of outstanding stock. Yahoo now has 10 percent fewer shares outstanding than a year ago. The company indicated it may spend another US$1.9 billion buying back its stock, which would be enough to take about 70 million more shares off the market at current prices.

As of late Tuesday, Yahoo's stock had gained 22 cents to US$27.10 in extended trading. The shares have gained more than 70 percent under Mayer's leadership.

In an unusual live video presentation streamed on Yahoo's website, Mayer focused on other things besides finances while reviewing the company's progress since she defected from a top job at Google a year ago to try to rejuvenate one of the Internet's best-known brands.

Mayer said Yahoo's employee attrition rate is down by 59 percent and innovation in mobile is way up, thanks largely to the 17 acquisitions that she has completed, including a US$1.1 billion deal for Internet blogging service Tumblr. Traffic to Yahoo's website is also on the upswing for the first time in more than a year, according to Mayer.

"We have created a new, supercharged Yahoo," she boasted during the video presentation.

Mayer, 38, has gotten a big jolt from Alibaba, a rapidly growing company in which Yahoo invested US$1 billion eight years ago in exchange for a 40 percent stake.

After selling part of its holdings back to Alibaba last year, Yahoo still owns a 24 percent stake that is expected to bring in another US$10 billion to US$20 billion during the next few years.

Alibaba is also lifting Yahoo's ongoing earnings, as the second-quarter report illustrated. Yahoo made more money from its investments in Alibaba and Yahoo Japan during the second quarter than it did from its U.S. operations. That's the second straight quarter that has occurred.

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