Yahoo profit beats Wall Street as analysts fret over effect of hack

Yahoo has reported better- than-expected quarterly adjusted profit, a boost for the company whose deal to sell its core business to Verizon Communications has been shaken by a massive data breach.

Verizon’s general counsel said last week that the hack, which affected at least 500 million email accounts in 2014, could have a material impact, possibly allowing Verizon to withdraw from the $4.83 billion (€4.4 billion) deal. Yesterday’s results provided at least an initial indication that the data breach has not led to a quick exodus of customers, as some had feared.

Customer trends showed growth in pageviews and email usage, Yahoo said. Still, analysts were split on whether the results dispelled doubts about the deal going through. Yahoo said in a filing with securities regulators shortly before the breach was disclosed that it knew of no cyber risks, raising questions about whether Verizon had been informed of the breach in a timely fashion.

JMP Securities analyst Ronald Josey said it was too early to tell if the breach would cause lasting damage, and called customer trends "encouraging". "The message here is email and messaging is a very sticky product and people want to get to their messages," said Josey.

But Fatemeh Khatibloo, a security analyst with Forrester Research, said the uptick in pageviews and email usage could be the result of "500 million people trying to figure out if they're exposed".

Any loss of users in the future, lawsuits related to the breach and a pending Federal Communications Commission vote that could limit how telecommunications companies can use customer data may encourage Verizon to try and back out of the deal, said Khatibloo.

High hurdle

However, Scott Kessler, an analyst with CFRA Research, said the fact that Yahoo did not see an immediate decline in users was a sign the breach may not be a material adverse change that would affect the Verizon deal.

“The bottom line here is from a fundamental operational and financial perspective, it doesn’t seem like much has changed at the company over the last quarter,” he said. Legal experts have said Verizon would have to clear a high hurdle to prove that the breach amounted to a material adverse change that would allow it to pull out of the deal.

Another positive sign for Yahoo was that revenue from Mavens – the mobile, video, native and social advertising units that chief executive Marissa Mayer touts as its emerging businesses – rose 24.2 per cent to $524 million. Still, the business showed continuing declines in major revenue categories. Gross search revenue fell 14.1 per cent to $752.5 million.

Total revenue rose 6.5 per cent to $1.31 billion, just beating the average analyst estimate of $1.30 billion, according to Thomson Reuters.

But after deducting fees paid to partner websites, revenue fell to $857.7 million from $1 billion.

Yahoo said on Friday it would not hold a call or webcast after the release of the results, citing the Verizon deal. Analysts at Needham & Co said in a note on Tuesday that decision troubled them, given doubts cast over the Verizon deal by the data hack, and they cut their rating on Yahoo to hold from buy.

Yahoo’s shares were up about 1.3 per cent in extended trading after the close on Tuesday. – (Reuters)