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Has Marissa Mayer Done Enough?

Stocks in this article: YHOO GOOG FB TWTR

Updated from 10:51 a.m. to include additional analyst thoughts in the ninth paragraph.

NEW YORK (TheStreet) -- First-quarter earnings at Yahoo! (YHOO) didn't exactly blow the barn doors off, but for CEO Marissa Mayer and CFO Ken Goldman (my new favorite person by the way), they were good enough. For Wall Street, that's what matters, especially as Alibaba gets ready to go public later this year.

Yahoo! reported first-quarter earnings that beat Wall Street expectations, earning 38 cents a share on $1.087 billion in revenue excluding traffic acquisition costs (TAC). It looks as if core Yahoo!, search and display advertising, is turning around a bit, as CEO Marissa Mayer noted this was the best first-quarter revenue ex-TAC since 2010.

Display revenue ex-TAC was $409 million, a 2% increase year-over-year, as the number of ads increased 7% year over year. However, like most in the Internet industry (read: Google (GOOG)), the price per ad continued to trend lower, falling 5% over the same time frame. Search continues to be a strong driver for Yahoo!, as revenue excluding TAC rose 9% over the first quarter of 2013 to $444 million.

Analysts surveyed by Thomson Reuters expected Yahoo! to earn 37 cents a share on $1.08 billion in revenue for the first quarter.

For now, it looks as if the core business is slowly but surely turning around, despite most of the attention being paid to Chinese Internet giant Alibaba, which Yahoo! owns a 24% stake in, and for good reason. For the quarter, Alibaba earned $1.36 billion in net income on revenue of $3.058 billion, a year-over-year rise of 110% and 66%, respectively. Alibaba is expected to go public later this year, and could file its F-1 as soon as next week.

Piper Jaffray analyst Gene Munster noted that user metrics are starting to turn around for Yahoo!, but there's still plenty of work to do. "Net display revenue was about 2% ahead of
Street expectations and grew 2% y/y, but we note this would include Tumblr," Munster wrote in a research report. "Thus excluding Tumblr and looking at a more organic number, display revenue may have been more flattish y/y. With the emergence of RTB platforms, we believe that core portal players like Yahoo! are becoming increasingly less favorable given high relative costs for guaranteed buys. We believe that Yahoo! has opportunity in premium video and mobile, but note that they still have work to do to create a platform as relevant as a YouTube or Hulu in terms of advertisers' minds." Munster rates Yahoo! "neutral" with a $37 price target.

Much of the complaint has been made that Yahoo! has been stagnant, and that it's just all about Alibaba, and to a lesser extent, Yahoo! Japan, (which performed horribly this quarter). Yet, it looks as if the turnaround is starting to happen, albeit at a snail's pace.

"Our modest success this quarter is an important start," Mayer said on the call. "I should also note that the number of ads sold in Q1 grew, reinforcing a year long trend and increasing to 7% year-over-year. Part of this growth of course has been driven by our mobile business. It's a key area of investment for us and we're seeing nice returns on those investments in terms of users, traffic and revenue. Mobile is the future of our business."

To be fair, Mayer has said in the past that turning around the core business is going to take a few years, and she's laying the groundwork for it now. Topeka Capital Markets analyst Victory Anthony, who rates shares "buy" with a $49 price target, reiterated this sentiment from Mayer and her team. "Management stressed that their efforts to drive growth at Yahoo! are seeing early, but modest success and it will take multiple years to get the growth they desire," Anthony wrote in the note.

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