Yahoo’s ad woes in 5 charts

What do you do if your display ad business rapidly gets stale — taking along with it your bread and butter?  If you’re Yahoo, you start to sweat.

The company delivered its second-quarter earnings this week, and there’s a lot to be worried about. The biggest problem is that Yahoo’s core display ad business, which accounts for roughly 38 percent of its overall business, declined 8 percent to $436 million. For Yahoo, which helped create the market for display advertising, that’s not a good sign.

And there’s not much reason to be hopeful about the future, at least in the short term. “It’s not clear to me that Yahoo’s display business is ever going to get back to significant growth based on the strategy they’ve outlined so far,” said Jan Dawson, analyst at Jackdaw Research. “The best opportunity in display is premium ads, but Yahoo’s strategy for getting more of those is basically its magazines, which won’t necessarily capture the premium audience. What Yahoo is best at is capturing a very wide audience, not attracting a premium audience that advertisers really want to reach.”

Here’s a look at Yahoo’s struggles in charts.

Yahoo is selling more ads, but at cheap rates
A chart from Yahoo’s own earnings presentation makes the company’s problems clear. Like the rest of the industry, Yahoo is selling more and more ads. The problem is that its per-ad asking price is declining rapidly, meaning that selling more ads isn’t actually helping its bottom line all that much.

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The Hail Mary: Premium video and ‘magazines’
Yahoo’s defense against its sinking display revenue comes on two fronts — its increasing video output and the ramping up of its so-called digital “magazines” unit, both of which will let it sell ads at much higher rates. On the video side, Yahoo has both invested in original programming and bought the rights to shows like “Community.” On the magazine side, it has launched editorial verticals for technology, travel, sports and food, all of which have the potential to attract big advertisers.

And the potential is certainly there. Here’s a look at what’s happening to industry spending on video ads, according to eMarketer.

video-ad-spending

Yahoo’s shrinking slice of the pie
So far, so good. Video ad spending is up, and Yahoo wants a part of it. The problem is that it’s still not clear whether Yahoo can grow its video and native ad businesses fast enough to offset declines in its larger display business.

To make matters worse, Yahoo is slowly getting left behind by the rest of the industry. Here’s what the overall share of worldwide ad revenue looks like today. Yahoo will command 2.5 percent this year, down from 2.9 last year. That’s smaller than the shares of Google, Facebook and even Microsoft. So while the overall ad pie is growing, Yahoo isn’t getting a bigger slice.

Yahoo’s search share continues to dip
Yahoo is facing similar troubles on the search front. While revenue from its search division increased 6 percent last quarter, Yahoo’s share of the the U.S. desktop search market has dipped to as low 10 percent, according to comScore. That number was closer to 20 percent five years ago. It’s still not clear how Yahoo’s mobile search revenue compares to its desktop numbers.

yahoo-searchThe bottom line: Marissa Mayer’s Yahoo is still flat
All of this, as you’d expect, isn’t helping Yahoo’s overall bottom line. Despite the many moves of CEO Marissa Mayer, over the past two years, Yahoo’s overall revenues still dropped 4 percent last quarter from the same time a year ago. Yahoo’s turnaround is still very much a work in progress.

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