Wall Street wasn’t overly pleased with Yahoo’s (YHOO) second-quarter results yesterday, sending its shares tumbling downward over 5%. The surprise announcement that the company would return to shareholders at least half of the proceeds from the upcoming initial public offering of Chinese e-commerce giant Alibaba didn’t trump a 19% decline in earnings that missed analyst expectations or lackluster top-line performance. Further clouding the mood was subpar guidance for the third quarter.

Following the earnings announcement, several Wall Street analysts voiced their displeasure with Yahoos’ results.

“Clearly the recovery is taking longer than expected, and the shield of Alibaba is wearing thin,” wrote Sameet Sinha, an analyst at the investment bank B. Riley & Co., in a note to investors.

Brian Wieser, an analyst at Pivotal Research Group, who rates Yahoo a “hold,” wrote that the results were “much worse than we expected.”

These struggles have led to mounting criticism of Marissa Mayer, Yahoos’ CEO, who is entering his third year at the helm after coming over from Google (GOOGL).

During the post-earnings conference call with analysts Tuesday afternoon, CFO Ken Goldman allowed that “growth is absolutely a function of success,” acknowledging that the company needed “to operate with an even greater sense of urgency.” Since Mayer took over Yahoo, it has bought 41 companies large and small in an attempt to revive a company that was late to the consumer shift to smartphones and tablets as well as jumpstart its advertising business.

However, the results have been mixed. While the company missed Wall Street expectations this quarter, it narrowly beat estimates in the prior two quarters. Yahoo momentarily raised investors’ hopes in May when its display advertising revenue, an important financial metric, reversed a downward trend and actually grew 2%. However, that appears to have been an anomaly as Yahoo’s display ad sales fell 7% in its most recent quarter. Furthermore, research firm eMarketer now projects Yahoo will drop from third to fourth place in global advertising market share this year with 2.52%, behind Google, Facebook, and Microsoft.

“The weak display performance, coupled with guidance, puts more pressure on Marissa’s tenure,” said Laura Martin, a senior Internet analyst at the investment bank Needham and Co. “She’s two years in, and the numbers aren’t getting better.”

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Wayne Thorp
ABOUT THE AUTHOR:

Wayne A. Thorp, CFA, is editor of Computerized Investing and a vice president and the senior financial analyst at The American Association of Individual Investors (AAII). He is also the program manager for AAII's Stock Investor Pro fundamental stock screening and research database program and is on the advisory boards of AAII's Stock Superstars Report and Dividend Investing newsletters. He holds the Chartered Financial Analyst (CFA) designation and is a 1997 honors graduate of DePaul University in Chicago. Wayne's interests include stock screening, technical analysis and charting, social media and tech gadgets. However, in the summer he'd prefer to be hip-deep in northern Michigan's Manistee River fly-fishing for rainbow trout.

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