SUNNYVALE -- In her first year as CEO at Yahoo (YHOO), Marissa Mayer has revamped products, shrugged off controversy and presided over a corporate shopping spree that has gobbled up 17 smaller companies, all in an effort to re-energize the struggling Web giant.
At the same time, Yahoo's stock has surged more than 70 percent, thanks to a long-held stake in a high-flying Chinese Internet firm. "The company is worlds ahead of where it was a year ago," said longtime shareholder Eric Jackson, a hedge fund investor and outspoken critic of previous Yahoo bosses.
But Yahoo's most important advertising business has continued to show an alarming decline. And as Mayer approaches her anniversary at the company on Tuesday, analysts say Yahoo is far from out of the woods.
"Yahoo is trying to sell a product that fewer and fewer advertisers want," warned Karsten Weide, a media analyst for the IDC research firm. "They've been consistently losing market share."
An pioneer in the Internet industry, Yahoo is still one of Silicon Valley's most prominent companies. Its websites, email service and other programs are used by hundreds of millions of people around the world. But its influence has waned as the company missed key market shifts toward mobile computing and social networking. Sales have sagged in recent years, and a revolving cast of chief executives was unable to stem the tide.
Mayer, a 38-year-old former Google (GOOG) executive, has warned that Yahoo's turnaround will take several years. Even so, she insists the company is on its way after a series of high-profile moves aimed at boosting internal morale and redesigning the company's online services for smartphones and other mobile gadgets, which a growing number of Internet consumers are using instead of desktop computers.
By building new products that "delight and inspire," Mayer told shareholders in June, Yahoo will attract more users, which in turn will draw more advertisers and revenue. "The future for us," she declared, "is that virtuous cycle."
While Mayer declined to comment for this article, she has outlined her strategy in recent public talks.
"What we needed to do was reinvent ourselves," she told a Stanford University audience last month. That's not easy, Mayer acknowledged, but she said the trend toward mobile computing is "so big" that Yahoo "can catch a part of it and ride it" to success.
Some analysts say they're still waiting for results. "Marissa Mayer has been Yahoo's CEO for almost a year and the metrics associated with its display (advertising) business have not improved," Carlos Kirjner of Bernstein Research wrote in a report this month. "One could argue they have deteriorated."
Mayer was already a prominent Silicon Valley executive when she joined Yahoo. One of the first hires at Google, she rose from software engineer to senior manager while earning a reputation as a tough boss in a male-dominated field -- and as a self-proclaimed fan of quirky humor, designer cupcakes and couture.
Now she's even more in the spotlight as she tries to pull off what Joseph Grundfest, a Stanford law and business professor, described as "one of the most important turnaround efforts in Silicon Valley," along with veteran CEO Meg Whitman's similar bid to revive another struggling tech giant, Hewlett-Packard (HPQ).
Yahoo makes its money from advertising, but its revenue slid from $7.2 billion in 2008 to $4.9 billion last year, as advertisers turned to newer rivals such as Google and Facebook. During the same period, Yahoo employees were whipsawed by a series of CEOs, including cofounder Jerry Yang, tough-talking Carol Bartz and short-lived Scott Thompson, ousted last spring over false-résumé claims.
Soon after she was hired last summer, Mayer moved to restore morale by providing free food in company cafeterias and letting employees choose new smartphones. She also sparked a national debate by ending a policy of letting staff members work from home. But the move was applauded by some, including Yahoo employees who said it could foster discipline and collaboration.
Yahoo says job applications have increased, although the workforce has shrunk to 11,300 from 12,500 last year, without major layoffs. Mayer now enjoys an 85 percent approval rating from Yahoo workers on the job-rating site Glassdoor -- higher than the average CEO rating of 67 percent and much higher than her Yahoo predecessors.
Mayer also launched an overhaul of Yahoo's online products, revamping designs and adding new features to the company's home page, email service and Flickr photo-sharing site, among others. At the same time, she has presided over one of the busiest corporate shopping sprees in recent Silicon Valley history.
Yahoo's $1.1 billion purchase of the social-blogging site Tumblr drew headlines in the spring and raised eyebrows because the site had only $13 million in annual revenue. Mayer has vowed Tumblr will help Yahoo reach a new audience of younger Internet users.
But most of Mayer's acquisitions involved small startups, like social recommendation service Jybe and mobile game-maker Loki Studios, in deals ranging from a few million dollars to $50 million. Analysts say these helped Yahoo gain talented engineers or technology that Mayer can use to create new products for mobile devices.
Mayer has also said she's "realigning" Yahoo's ad business, after hiring Google ad executive Henrique De Castro to serve as her chief operating officer.
So far, according to Weide, "there's been little visible progress." To compete with the likes of Google and Facebook, he said, Yahoo needs to implement more automated advertising technology that will help advertisers deliver messages to consumers at exactly the right time and place.
Yahoo's display advertising sales have fallen in each of the last two quarters under Mayer. The company also makes money from another category of ads, which appear next to Internet search results, but its share of that market is shrinking, too.
Mayer's efforts and personal star power have helped boost Yahoo's share price, analysts say. But many also believe the surge is driven by investors who expect a big payout when Alibaba goes public next year. Yahoo owns 24 percent of the Chinese firm.
Meanwhile, analysts will be watching closely for signs that Yahoo's ad business is improving. Mayer is scheduled to issue another quarterly report on Tuesday.
Contact Brandon Bailey at 408-920-5022. Follow him at Twitter.com/brandonbailey.