(Bloomberg) Yahoo! Inc. (YHOO) Chief Executive Officer Marissa Mayer, projected to report the first annual sales gain in four years today, is being urged by investors to explain how she'll build on that growth by luring users and advertisers.
The shares have surged 30 percent since Mayer was named CEO in July, reflecting confidence in her ability to engineer a turnaround after market-share losses slammed momentum at the largest U.S. Web portal.
Mayer, the fifth CEO in four years, is trying to catch up to Google Inc. (GOOG) and Facebook Inc. (FB) in display advertising and racing to improve a search partnership with Microsoft Corp. that hasn't met revenue expectations. Her changes so far -- an e-mail redesign and an overhaul of the Flickr photo-sharing service -- don't offer a strategy for expansions in search or mobile technology, the company's biggest growth opportunities, said Brian Wieser, an analyst at Pivotal Research Group LLC.
"Some of the rise has occurred because there are people who have bought into Marissa Mayer driving growth potential -- just on her alone," said Wieser, who has a hold rating on the shares. "I'm not clear on what it is she wants to do."
After the close of U.S. markets today, Yahoo will probably report a 6 percent gain in fourth-quarter net income, to $324.7 million, according to the average of analysts' estimates compiled by Bloomberg. Sales, minus revenue passed on to partner sites, is predicted to increase 3 percent to $1.21 billion in the quarter. A projected annual sales rise of 2 percent to $4.46 billion would be the first increase since 2008.
In a sign that some investors aren't persuaded that Yahoo can close the gap with Google, Yahoo is trading at a 17 percent discount to the Web-search leader on a price-to-earnings basis, wider than the 4 percent gap when Mayer took the helm July 17.
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's Erik Schatzker at the World Economic Forum in Davos, Switzerland. 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?"
Mayer still needs to explain how she plans to profit from the surging portion of users who access Yahoo on tablets and smartphones, Colin Gillis, an analyst at BGC Partners LP, said in an interview.
"They have a lackluster mobile presence," Gillis said. "She is going to try to deliver a better experience for Yahoo users. Just make sure that experience is better tailored to mobile."
Since Mayer arrived, Yahoo has continued to cede share in its core business, 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.
Google will retain its lead in the U.S. display-advertising market this year with an 18 percent share, while Facebook will have 15 percent and Yahoo will slip to 8 percent, EMarketer estimates.
To some extent, 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 exclusively 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, Gillis said.
"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."
Mayer also needs to court advertisers. She should invest more heavily in tools that help target promotions to consumers based on their Web browsing history, a practice known as real- time bidding, said Wieser. Yahoo could expand its current bidding system, Right Media, or acquire a startup in the field, he said.
"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," said Kevin Stadtler, president of Stadtler Capital Management LLC, which has $7.2 million in assets, including Yahoo shares. "That's a really big deal. We want an update on their strategy to sell that real-time data."
Amid looming questions about how Mayer will win consumers and advertisers, she helped build support among investors with plans to return $3 billion -- most of the proceeds from selling half of Yahoo's stake in Chinese partner Alibaba Group Holding Ltd. --to shareholders through buybacks. Yahoo had about $8.5 billion in cash and short-term investments as of Sept. 30, according to data compiled by Bloomberg.
Analysts including Pivotal's Wieser and Mark Mahaney of RBC Capital Markets expect Yahoo to provide an outlook for sales and operating income today, a practice the company suspended last quarter because of the recent arrival of Mayer and her newly appointed chief financial officer, Ken Goldman.
While investors and analysts grow impatient with Mayer for not specifying possible areas of growth, the CEO has helped rule out some businesses where she does not think Yahoo can compete. During the interview last week in Davos, Mayer said she prefers to partner with large companies like Apple Inc. (AAPL) rather than build expensive new products such as phones and social networks.
"We work with Apple and Google in terms of the operating system," Mayer said. "In terms of social network, we have a strong partnership with Facebook. We are able to work with some of these players, who have a lot of strength, in order to really bolster our user experiences that we offer on the Yahoo site."