Yahoo! Inc. reported fourth-quarter revenue that topped analysts' estimates and increased annual sales for the first time since 2008 as the largest U.S. Web portal benefited from buoyant demand for online search.
Fourth-quarter earnings, excluding some items, were 32 cents a share, Yahoo said in a statement. Sales, excluding revenue passed to partner sites, rose 4 percent $1.22 billion. Analysts on average had projected profit of 28 cents on revenue of $1.21 billion, according to data compiled by Bloomberg.
Chief Executive Officer Marissa Mayer, speaking on a call Monday, said she expects to build on last quarter's gains by getting users to spend more time on a dozen popular sites, including mail and Yahoo Finance. Still, forecasts for this quarter and the full year that fell short of analysts' predictions underscore the challenge Mayer faces in display advertising, an area where Yahoo lags behind Google Inc. and Facebook Inc.
"She's not pounding Madison Avenue and saying, 'Hey, advertise with us,' she's saying, 'Let me take time to build a great product and then, when we prove we can get the eyeballs, then you can advertise with us,'"
Sameet Sinha, an analyst at B Riley & Co., said in an interview.
It was the most substantial discussion of Mayer's strategy since she was hired in July, and could help convince investors that renewed focus on product innovation will eventually help drive Yahoo's sales growth, said Sinha, who is based in San Francisco and rates Yahoo shares a buy.
Yahoo rose 2.2 percent to the equivalent of $20.89 at 9:02 a.m. in Frankfurt. The shares declined 0.3 percent to $20.31 at Monday's close in New York, leaving them up 2.1 percent this year. Yahoo released results after the U.S. market close.
Adjusted profit excludes costs associated with closing Yahoo's Korea business, as well as restructuring charges.
"Our fourth quarter benefited from user interface improvements on mobile, very strong sales execution as well as favorable macroeconomic and seasonal trends," Mayer told analysts Monday on a conference call.
First-quarter revenue excluding the portion passed to partners will be $1.07 billion to $1.10 billion, shy of the $1.12 billion projected by analysts. Sales on that basis for 2013 will be $4.5 billion to $4.6 billion, compared with analysts' $4.59 billion estimate.
Net income attributable to Yahoo fell 7.9 percent to $272.3 million, or 23 cents a share, Yahoo said.
Sales of display ads fell 3 percent to $591 million. The company is working to improve in display, a market that EMarketer Inc. predicts will increase to $17.7 billion this year, by investing more in tools that deliver ad promotions to consumers based on their browsing history, said Kevin Stadtler, president of Stadtler Capital Management LLC.
"They are really well positioned because they can provide real-time data to advertisers, who can then pinpoint ads to people who are interested in their products," Stadtler, who manages $7.2 million in assets, including Yahoo shares, said in an interview. "That's a really big deal."
Mayer's turnaround will emphasize improvements to 12 top Yahoo sites designed to get users interacting more, and for longer periods of time, she said on the call. In the same way that recent updates to Flickr got users uploading 25 percent more photos, and an overhaul of Yahoo Mail resulted in a higher portion of ads being clicked, the company hopes to refresh sites such as Yahoo Finance and Yahoo News, Mayer said.
To help its push for product improvements, Yahoo hired 120 new employees with computer science degrees in the fourth quarter, Mayer told analysts. She also brought on Sandy Gould, a former recruiting executive at Walt Disney Co., to lead talent acquisition and development.
Yahoo is working on technology that will personalize content from the Web and feed it to people on their mobile devices, Mayer said in an interview with Bloomberg News last week. The company had more than 200 million unique mobile users in 2012, a Yahoo executive said on a conference call.
User data will make it possible to create a so-called interest graph to show connections among people and create a personalized Internet experience, she said.
"With the Web becoming so vast, there's so much content and there's so much social context, and now with mobile, there's so much location context and activity context," Mayer said. "How do you pull all that together?"
Since Mayer arrived, Yahoo has continued to cede share in its core business of display advertising. Yahoo's portion of the U.S. market was 9.3 percent last year, down from 11 percent in 2011, according to researcher EMarketer Inc. Google's stake rose about 2 percentage points to 15 percent, while Facebook commanded 14 percent.
Yahoo's fortunes are waning in tandem with the personal- computer industry. Yahoo, once the dominant choice for e-mail and search tools when consumers surfed the Web on desktops, has failed to adapt to a new era where many users rely more on smartphones and tablets.
Google and Facebook have been more nimble at catering to consumers' appetite for mobile apps that work seamlessly with Web-based services, said Colin Gillis, an analyst at BGC Partners LP in New York.
"If I'm using Yahoo Finance for my stock quotes, don't make me go find a new app to fill that void on my phone," Gillis said. "Because once you do that, you've lost a user."