Yahoo's earnings improve, but the closure of its Verizon deal is delayed

Yahoo Inc.'s financial performance improved slightly during the fourth quarter while the company dealt with the fallout from massive security breaches that have jeopardized the $4.8-billion sale of its Internet operations to Verizon Communications Inc.

Yahoo also disclosed Monday that the closure of the Verizon deal will be delayed for up to three months. And, according to the Wall Street Journal, the Securities and Exchange Commission has opened an investigation into whether Yahoo should have announced the security breaches sooner than it did.

Yahoo’s fourth-quarter report, released Monday, provided the latest snapshot of a shrinking company that has been steadily losing ground in the digital advertising market that generates most of its revenue.

Although cutting costs helped the Sunnyvale, Calif., company bounce back from a loss in the same period a year earlier, the company's net revenue slipped yet again to extend a downturn that has lasted through most of Chief Executive Marissa Mayer's 4½-year tenure. In a sign of modest progress, Yahoo's revenue fell 4% after subtracting ad commissions, snapping a streak of four consecutive quarters of double-digit declines.

Yahoo's long-running slump culminated in its agreement last summer to sell its email service, websites and mobile applications to Verizon.

But after striking the Verizon deal, Yahoo revealed that it had been hit by two separate hacking attacks that compromised the email addresses, birth dates, answers to security questions, and other personal information from more than 1 billion user accounts. The break-ins occurred in 2013 and 2014, raising further questions about Yahoo's security controls and the timing of its disclosures.

A report in the Wall Street Journal, cited unidentified people familiar with the matter, said the SEC has opened an investigation into whether Yahoo took too long to announce the security breaches.

The SEC declined to comment. Yahoo pointed to an SEC filing in November that acknowledged the company is cooperating with various government agencies, including the SEC, that are seeking information and documents pertaining to the breaches.

Verizon has been doing its own review to determine whether it should renegotiate the sales price or cancel the deal entirely on the premise that the news of the security breaches will cause many people to become leery of using Yahoo's email and other services in the future. A downturn in traffic could make it more difficult for Verizon to sell ads.

Mayer said user engagement has remained stable without providing specific numbers in a statement accompanying the fourth-quarter results.

Even so, wrapping up things with Verizon is going to take longer than Yahoo had hoped. Instead of closing the deal by the end of March as originally planned, Yahoo predicted it will now be completed at some point from April 1 through June 30.

“The opportunities ahead with Verizon look bright,” Mayer said.

The company earned $162 million, or 17 cents a share, during the final three months of 2016. That compared with a year-earlier loss of $4.43 billion, or $4.70 a share, that included charges for layoffs and the decaying value of Yahoo's past acquisitions.

If not for certain accounting items, Yahoo said it would have earned 25 cents a share. That figure exceeded the average estimate of 22 cents a share among analysts polled by Zacks Investment Research.

Yahoo's fourth-quarter revenue totaled $1.47 billion. After subtracting commissions paid to advertising partners, Yahoo's revenue stood at $960 million, down from $1 billion in the year-earlier quarter.

For all of last year, Yahoo's revenue fell 14% to $3.52 billion, after deducting ad commissions. It was Yahoo's lowest annual net revenue since 2004. At that time, Yahoo was slightly larger than Google. Google now generates about 20 times more revenue than Yahoo. 

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