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Yahoo's growth anemic as turnaround chugs along

A Yahoo logo is pictured in front of a building in Rolle, 30 km (19 miles) east of Geneva, in this file picture taken December 12, 2012. REU
A Yahoo logo is pictured in front of a building in Rolle, 30 km (19 miles) east of Geneva, in this file picture taken December 12, 2012. REU

By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Yahoo Inc again posted anemic quarterly revenue growth as the Internet company's advertising business continues to lag its rivals, nearly two years into Chief Executive Officer Marissa Mayer's comeback effort.

Mayer told analysts on Tuesday that new mobile and advertising initiatives were gaining momentum, positioning the company for a period of stable but modest growth. Revenue from its core display advertising business inched 2 percent higher in the first quarter, reversing several consecutive quarters of declines.

But the company forecast second-quarter revenue, excluding fees paid to partner websites, of $1.06 billion to $1.1 billion. That suggests revenue could decline by as much as 1 percent or rise by up to 2.7 percent from $1.07 billion a year earlier, underscoring the challenges facing its business.

That did not faze Wall Street, which is focused primarily on Yahoo's 24 percent stake in Alibaba Group Holding Ltd , the Chinese e-commerce giant that is expected to go public later this year.

Yahoo's shares climbed 7 percent on strong results from Alibaba.

"It's really Alibaba driving things," said Macquarie Research analyst Ben Schachter. Yahoo's core business improved slightly in the first quarter, but "really the story here is Alibaba and the somewhat unexpected re-acceleration" of its revenue growth.

The Chinese company's revenue increased 66 percent to $3.06 billion in the fourth quarter, according to slides that Yahoo posted on its investor relations website on Tuesday, faster than the 51 percent growth in Alibaba's third quarter.

Yahoo reports the Chinese company's financial results one quarter later than its own.

CHEAPER ADS PROLIFERATE

Mayer is trying to revitalize Yahoo's business. The former Google Inc executive revamped many of Yahoo's Web products but its ad sales business continues to struggle while rivals such as Google, Facebook Inc and Twitter Inc continue to post strong, double-digit revenue growth.

Revenue from display ads, which accounts for roughly 40 percent of Yahoo's overall sales, increased just 2 percent to $409 million, excluding partner fees. That meager growth follows several consecutive quarters of decline in the display ad business.

Yahoo said it was making progress in developing new mobile technology, online video, social media and new ad formats. The company now counts 430 million monthly users of its mobile products, while the number of online video streams consumers watched increased 30 percent from the fourth quarter.

Finance chief Ken Goldman said that so-called "stream ads" that appear in-between scrolling news headlines on Yahoo's Web pages now account for about a fifth of the number of display ads that the company serves. He noted that stream ads were priced lower, weighing on the company's total average price per display ad, which declined 5 percent.

Goldman did not provide any update on how Yahoo might use the proceeds from the Alibaba IPO, during which Yahoo is required to sell 40 percent of its stake in the company.

Alibaba, valued at more than $140 billion, is expected to go public later this year in the United States in the largest IPO since Facebook's debut in 2012.

Yahoo's revenue, excluding fees paid to partner websites, came to $1.087 billion in the first quarter, up from $1.074 billion in the year-ago period. Analysts polled by Thomson Reuters I/B/E/S had expected adjusted revenue of $1.077 billion.

It had net income of $311.6 million, or 29 cents a share, in the first quarter. It earned 38 cents a share excluding certain items.

(This story has been fixed to correct the display revenue number to $409 million from $453 million, in 10th paragraph)

(Reporting by Alexei Oreskovic; Editing by Alden Bentley and Richard Chang)

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