After one year as CEO: Can Marissa Mayer engineer Yahoo comeback?

SAN FRANCISCO -- No question Marissa Mayer has star power. But can she lift Yahoo out of its doldrums?

One year ago the aging Internet laggard’s fortunes suddenly seemed brighter: It recruited the prominent Google executive. Overnight, Yahoo was splashed across headlines: not for its past foibles and failures, but for new hope that it could stage a comeback.

But in attempting to make Yahoo cool again, Mayer faces a central challenge that stumped all of her predecessors: how to put an end to the steady, years-long decline in advertising revenue and the daily drubbing from competitors Google and Facebook.

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Investors will be looking for any clues to Mayer’s progress on Tuesday with Yahoo’s second-quarter earnings report.

The report is expected to show Mayer is making progress, albeit slow, in her pledge to kick-start revenue growth at Yahoo. She has described Yahoo’s revival as a “series of sprints” that could take years, and she has asked investors to be patient.

They may have to be. Yahoo’s second-quarter revenue isn’t expected to budge much from results a year earlier.

“We expect display [advertising] to remain soft as Yahoo’s sales restructuring could take time to ramp, competition is increasing, and the company has reduced some inventory on the home page and in email,” J.P. Morgan analyst Doug Anmuth wrote in a research note.

He projects “slight” growth in the second half of 2013.

Overall, analysts forecast earnings of 30 cents a share on revenue of $1.08 billion after subtracting ad commissions.

A year ago, Yahoo earned 18 cents a share on revenue of $1.08 billion after subtracting ad commissions. If not for certain charges, the company would have earned 27 cents a share.

What has been on the rise: Yahoo’s stock, which has been trading around $27, up more than 70% since Mayer took over.

Why? The stock has gotten a big boost from the company’s stake in Alibaba, the fast-growing Chinese Internet company.

“This week’s operating results from Yahoo are unlikely to offer much significance to Yahoo’s stock, as most investors remain focused on Yahoo’s 24% stake in Alibaba, which accounts for $10 per share by our estimates,” Pivotal Research Group analyst Brian Wieser wrote in a research note.

Last year, Yahoo reaped $7.6 billion for selling nearly half its stake in Alibaba. The remaining stake could bring in $20 billion within the next few years, estimates Macquarie Capital analyst Ben Schachter.

Alibaba’s worth doesn’t say much about Yahoo, or its potential for a turnaround. But all that cash has helped Mayer go on a shopping spree. She has bought 16 companies so far, including the blockbuster $1.1-billion acquisition of Tumblr. She has also killed off a lot of Yahoo products to get the company more focused on the future (i.e., it’s all about mobile).

BGC Partners analyst Colin Gillis is pouring a jug of ice cold water on Yahoo ahead of earnings with his research note/investment haiku: “Let’s count the reasons, why shares of Yahoo are ripe, to stage a pullback.”

In all, he has 10 reasons, but chiefly, he wrote, the core business continues to struggle “significantly.”

“As an example, the number of display ads sold have declined seven straight quarters year-over-year, and last quarter the price per display ad also declined,” Gillis wrote.

He’s not even high on the Tumblr acquisition. “We view that $1.1 billion for billions of pages of lower quality content and a user base that may push back against advertising may prove difficult to monetize,” he said.

And, for all the high expectations of Mayer, her efforts -- at least so far -- have not had the desired effect on how consumers perceive Yahoo, according to YouGov’s BrandIndex.

In fact, Yahoo is viewed in a less positive light than it was when Mayer took over, reports YouGov, which tracks changes in how consumers perceive brands.

Most damaging to Yahoo: Revelations in June that Yahoo and other Internet companies were turning over user information to a secretive program run by the National Security Administration.

Another factor that temporarily dented the company’s reputation? Mayer’s now infamous telecommuting ban.

Mayer may make up for that ban with a new wristband. All Things D’s Kara Swisher reports that Mayer isn’t just giving her employees free gourmet food at the office. Now she’s adding a new perk: Jawbone UP fitness wristbands for more than 11,000 employees.

The bands retail for $130 and are similar to Nike’s FuelBand or Fitbit’s Flex. (The bands come in eight colors, but no Yahoo purple. Now that Mayer has joined Jawbone’s board, that may change.)

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