Yahoo's display ad business a concern

NEW YORK, USA: Wall Street analysts flagged the decline in Yahoo Inc's core display advertising revenue as a concern, a day after the company posted quarterly results in line with market expectations.

Yahoo's display advertising business, which is facing increasing competition from Google Inc and Facebook, took a hit in the fourth quarter, particularly in Europe.

"The source of the fundamental weakness -- 4 per cent year-on-year decline in net display revenue -- is a major problem, given sector display ad growth of 15 per cent to 20 per cent," Citigroup analyst Mark Mahaney wrote in a note.

In contrast, search giant Google said last week that its display and mobile businesses performed well in the holiday quarter.

Yahoo CEO Scott Thompson, who took the helm after the company fired Carol Bartz in September, said the company would leverage its deep stockpile of user data to provide better products and services.

J.P. Morgan analyst Doug Anmuth said the drive would be key to improving Yahoo's display business given an increasingly competitive market.

Of the 32 analysts covering the stock, 22 remain on the sidelines with a "hold" rating, while nine have a "buy" or a "strong buy" rating. The mean price target on the stock is $17.74.

Yahoo shares were marginally down in premarket trade at $15.60, after closing at $15.69 Tuesday on the Nasdaq.

Asian deals?

JP Morgan, Citigroup and Jefferies & Co said investor focus was likely to remain on Yahoo's deals, possibly involving its Asian assets.

"Yahoo's Asia investment portfolio would seem to contain significant shareholder value creation opportunities," Citigroup said.

The company said on Tuesday that talks with its Asian partners Alibaba and Softbank about a restructuring were continuing, but provided scant details beyond that. Yahoo holds a 40 percent stake in the Chinese e-commerce website.

"With a new CEO, an atrophying core business, little guidance beyond the first quarter, and no visibility into the monetization of the Asian assets, we remain cautious on the amount of spend needed to compete with Google and Facebook in display," Jefferies & Co analyst Youssef Squali said.