Analysis: User engagement, ad-revenue growth are critical

market watch
By Benjamin Pimentel

 Yahoo Inc. may have reclaimed the top spot in the Web traffic rankings, but experts say the Web portal has a long way to go before it’s demonstrated that the huge changes made by CEO Marissa Mayer are turning the business around.

n short, Yahoo YHOO +0.06%  must show that increasing traffic also means more engaged users — which, in turn, could lead to better ad sales for a company who’s revenue has continued to slip downward.

Yahoo’s image got a boost last week from a report by comScore that said it surpassed Google Inc.’s overall Web traffic in the month of July to claim the No. 1 spot for the first time in two years.

But the Sunnyvale, Calif.–based company will need more than a jump in eyeballs to signal a definitive comeback. That’s because — despite Yahoo’s big push to make its websites more attractive to users — its efforts haven’t yet translated into significantly stronger revenue growth.

This point was underscored in a report from Macquarie Capital this week, which warned that Yahoo’s “year-over-year homepage ad quality trends continued to deteriorate” through the first half of the third quarter.

 “Yahoo remains on a downward trajectory,” analyst Ben Schachter wrote in that note. He rates Yahoo’s shares as neutral.

Yahoo under Mayer continues to tout change. This week, the company announced the redesign of seven of its major sites, including Yahoo Sports, Yahoo Weather and the entertainment-focused Yahoo omg.

That has impressed ad executives like Howie Schwartz, CEO of mobile advertising company Human Demand, who told Marke*****ch that Yahoo is doing a good job “gaining back the attention of advertisers who may have ignored them over the past two years.”

Which is why the comScore report is a big deal, he added, “as many players on the sidelines have been calling Yahoo ‘dead in the water.’ ”

But other Yahoo watchers are less upbeat.

“Who cares about the number?” Marc Poirier, executive vice president at Acquisio, a digital marketing agency, told market watch. “To me, it’s not meaningful at all.”
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