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'SOMETHING WENT DRAMATICALLY WRONG': Analysts Rip Yahoo's Ad Business

marissa mayer

Stephen Lam/Reuters

Yahoo CEO Marissa Mayer

In an earnings call Tuesday, Yahoo announced a disappointing second quarter highlighted by a 7% drop in display advertising revenues.

The postmortems from the investment analyst community offer a brutal forecast for the display ad business - for years Yahoo's bread-and-butter - that doesn't offer much hope that things will get better any time in the near future.

Here's a sampling of what they've been saying:

In her earnings call, Yahoo CEO Marissa Mayer chalked up the decline to two issues: the company's inability to get advertisers up-and-running on its new ad-buying platform -Yahoo Ad Manager Plus - and a shift in marketer preferences toward buying its cheaper, lower quality ads.

Essentially, the company continues to suffer from its failure to bring new users to its properties and the perception that its advertising technology is not as robust as that of its competitors.

Yahoo Ad Manager Plus was introduced during Mayer's big announcement at this year's Consumer Electronics Show in January, where the CEO laid out the company's plans to consolidate and rebrand its advertising offerings.

At the time, people in the industry were uncertain of how quickly the consolidation would translate into improved ad tech products on par with rivals like Google, Facebook, and Microsoft.

As Razorfish CEO Pete Stein put it to us in January: "The thing is that this is the announcement, so I guess we'll see how much of the technology is there already, and how much is being built."

By the looks of things, much of the technology for Ad Manager Plus, a platform that allows big brands to target and buy Yahoo's premium ads, was still in the process of being built.

Mayer said Tuesday that Yahoo had delayed the product's rollout as it "took extra time to ensure the product was delivering for our advertisers," lengthening the amount of time it has taken to get brands to use it.

The other issue is that despite investing in its digital magazines and bringing in talent like Katie Couric and tech journalist David Pogue to improve its content offerings, Yahoo simply isn't moving the needle with users.

As Rosenblatt Securities' Martin Pyykkonen points out in an investor note, Yahoo's display ad prices dropped 24% this past quarter year-over-year, a drop he chalks up to the company's inability to draw traffic.

"We think this points to YHOO losing competitive pricing power for its premium display ad inventory, which reverts back to the prerequisite driver, which is still lacking significant usage growth across YHOO's core properties to drive audience metrics for advertisers' spending," Pyykkonen wrote.