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Marissa Mayer Touts Yahoo ‘Progress’ After Weak Q2 Earnings Report, Which May Be Her Last as CEO

Internet company, in the midst of final talks to sell itself, takes impairment charges totaling $482 million for Tumblr

Yahoo, in the midst of final negotiations to sell itself, reported earnings in line with analysts’ already lowered expectations for the second quarter of 2016, while embattled CEO Marissa Mayer said the company has made strides both on cutting costs and in its talks with prospective buyers.

The earnings report could be the last for Yahoo — as well as for Mayer, who may lose her job if a deal to sell the company is clinched.

“With the lowest cost structure and headcount in a decade, we continue to make solid progress against our 2016 plan,” Mayer said in announcing the Q2 results. “In addition to our efforts to improve the operating business, our board has made great progress on strategic alternatives. We are relentlessly focused on delivering shareholder value.”

Yahoo disclosed that during the second quarter of 2016, it took impairment charges totaling $482 million for Tumblr, the blogging site it acquired for $1.1 billion in 2013 — the biggest deal under Mayer’s leadership. The write-down was the result of a combination of factors, according to the company, including decreases in projected Tumblr operating results and estimated future cash flows. That comes after Yahoo took a $230 million goodwill-impairment charge for Tumblr for the fourth quarter of 2015.

Overall, Yahoo posted revenue of $1.3 billion, up 5% year over year, while revenue excluding traffic acquisition costs dropped 19% to $841 million. The company reported adjusted earnings per share of 9 cents, down 43% from a year ago. Wall Street analysts had expected the 21-year-old Internet company to report net revenue (excluding traffic acquisition costs) of $840 million, with adjusted earnings of $148 million and EPS of 10 cents.

But excluding an accounting change in how Yahoo recognizes revenue under its search agreement with Microsoft, Yahoo’s total revenue would have been $1.055 billion for Q2 2016, a 15% decline from the year prior, and its cost of traffic acquisition would have been $214 million, up 7% year over year. Yahoo said the sale of real estate in Santa Clara, Calif., to Chinese tech company LeEco during the quarter generated $246 million in net cash proceeds.

Yahoo earlier this year formally initiated a process to explore the sale of its core business, as investors have grown impatient with a turnaround promised by Mayer that has failed to materialize. Bidders for Yahoo include Verizon, which acquired AOL in a $4.4 billion deal last year, as well as Quick Loans founder Dan Gilbert and private-equity firms. Final-round bids reportedly were due Monday; any such deal would not include Yahoo’s stakes in Alibaba Group or Yahoo Japan, which currently represent the bulk of its market value.

Mayer, on a call Monday with investors, said she had nothing to announce on the Yahoo sale, but said that the company is “deep in the process” and will provide an update “as soon as it is prudent.”

Under the terms of her employment agreement, Mayer would receive a severance package worth about $55 million if she’s terminated within a year of the company being sold.

In 2012, Yahoo hired Mayer, a prominent Google exec who at one time led its search business. But Yahoo’s financial performance has continued to decline, despite her efforts to double down in Internet search to compete with her former employer (even as Google is a key search partner, along with Microsoft, Mozilla and others). Another strategy that didn’t pay off: Yahoo’s ill-fated foray into original long-form entertainment, with shows that included the pickup of season 6 of cult comedy “Community” after NBC cancelled it.

With the Tumblr write-down, Yahoo posted a net loss of $440 million for Q2 (versus a net loss of $22 million in the year-earlier period), or 46 cents per share. Yahoo’s operating loss for Q2 ballooned more than tenfold, to $490 million, compared with the year-earlier quarter.

At the end of the quarter, Yahoo had about full-time 8,800 employees, reaching its goal of cutting 15% of its workforce, down from about 11,000 in the second quarter of 2015. “Our headcount has returned to 2002 levels,” Mayer said. The company recorded $19 million in severance charges for the most recent quarter.

During the second quarter, Yahoo said it established a holding company, Excalibur LLC, to explore the sale of more than 4,000 “non-strategic patents and pending applications.”

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