Yahoo posts gains in sales, profits but pressure still on

SAN FRANCISCO — Yahoo sales rose modestly in the third quarter, beating Wall Street estimates and sending shares higher.

But the aging Internet giant still doesn't have that much to yodel about.

Yahoo's online advertising business continues to struggle, even as the company saw growth in mobile advertising during the quarter.

The highlight of the quarter was the $6.3 billion Yahoo reaped from the sale of Alibaba BABA shares, which was higher than analysts expected.

Still, the rare earnings beat isn't likely to ease pressure on CEO Marissa Mayer.

"The wheels didn't fall off," BGC Partners analyst Colin Gillis said. "But there's nothing to be overwhelmingly excited about."

Excluding commissions paid to partners for Web traffic, Yahoo YHOO had revenue of $1.094 billion, up 1%, stemming a long slide.

Wall Street had expected revenue excluding commissions paid to partners of $1.05 billion.

The Sunnyvale, Calif., company broke out mobile advertising revenue for the first time, saying it was more than $200 million in the third quarter. Yahoo said it expected gross mobile revenue for the full year to exceed $1.2 billion.

Yahoo has also cinched its belt, closing offices and reducing head count 11% year over year. It earned 52 cents a share. Analysts had expected Yahoo to earn 30 cents a share.

"I have great confidence in the strength of our business," Mayer said.

But Mayer has not made as much progress as investors would like during her two-plus years at the helm, and skepticism about her leadership has been growing,

Yahoo continues to lag behind its chief competitors, Google and Facebook.

Yahoo will have 4.9% of the $50.7 billion market for online advertising in the U.S. this year, down from a 7.2% share last year, according to research firm eMarketer.

While Yahoo's share of the online ad pie is expected to decline, Facebook's share is expected to grow to 9.7%, up from 7.6% last year. Google's share will decline slightly to 38.3% this year from 39.7% in 2013, eMarketer predicts.

During a conference call with analysts on Tuesday, Mayer worked to reassure investors over the company's turnaround strategy.

Her comments came amid growing scrutiny from investors.

Activist investor Starboard Value revealed last month it had taken a stake in Yahoo. It sent a letter that pressed Yahoo to cut costs, explore a merger with AOL and split off its core business from its Asian holdings.

The letter also called on Yahoo to stop making acquisitions, which it said had cost the company $1.3 billion without delivering growth.

Yahoo has bought more than two dozen companies since Mayer took over as CEO in July 2012, including blogging service Tumblr for about $1 billion.

Mayer said Tumblr would generate more than $100 million in revenue in 2015.

She also said Yahoo would continue to make acquisitions for a company whose technology is "quite aged."

Yahoo is in talks to buy online advertising company BrightRoll for about $700 million to compete with advertising leader Google, TechCrunch reported this week.

"Has much changed relative to what we expected? Not really," said S&P Capital IQ analyst Scott Kessler. "Yahoo has a lot of cash and a lot of work to do. At least they have the financial flexibility and seemingly a sense of urgency to make things happen."