Yahoo shares plunge on decline in 1st quarter display-ad sales

SAN FRANCISCO — Yahoo Inc.’s first-quarter earnings report was seen by some as an early test of Marissa Mayer’s ability to turn around the troubled Internet company.

Investors now seem to be worried Mayer might not pass that test.

Shares that have surged more than 50% since Mayer took over Yahoo in July plunged more than 4% to $22.78 in extended trading Tuesday after the company reported that its display advertising business had suffered declining revenue for the second straight quarter. Revenue from display ads fell 11%, excluding certain items. Search advertising rose 6% year over year.

Yahoo said it earned $390 million, or 35 cents a share, in the first three months of the year, compared with $286 million, or 23 cents, in the first quarter of 2012.

Net revenue, which does not include fees to partner websites, was $1.07 billion in the quarter, essentially flat from the year-ago period.

Shares have rallied since Mayer took over Yahoo, trading in the neighborhood of $25, reflecting Wall Street’s confidence in Yahoo’s new leader and the rising value of its 24% stake in China’s Alibaba Group. Yahoo sold half its stake in Alibaba last year for $7.6 billion. It’s expected to sell the remaining stake when Alibaba goes public this year or next. Yahoo also has a 35% stake in Yahoo Japan, which has risen sharply in value.

“There is a still lot of value in Alibaba and Yahoo Japan. Yahoo is still doing better as an investment house than they are doing as a company,” BGC Partners analyst Colin Gillis said. “If you want to own this thing as a proxy for Alibaba, that’s understandable. If you are owning it for the core business, you have to start having some doubts about how long the turnaround is going to take.”

Since taking the helm at Yahoo, Mayer has been trying to get people to spend more time on its online services so she can bring back advertising dollars that in recent years have been diverted to Google Inc. and Facebook Inc.

She has redesigned Yahoo’s home page, email service and Flickr photo-sharing service. She has also made acquisitions to bring on engineers with experience in mobile. She has also focused on making sure Yahoo appeals to the growing number of consumers who are getting their content on smartphones and tablets.

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