Yahoo! Inc. (NASDAQ:YHOO) shares plunged on Tuesday after the company gave a cautious outlook, and suggested sluggish growth for Alibaba Group, a Chinese e-commerce company in which Yahoo holds a major stake. The shares tumbled 3.1% to $37.03 in after-hours trading after the result.Yahoo

Yahoo to focus more on advertising; analysts doubtful

CEO Marissa Mayer said that the company is gearing up to focus on the advertising side of things in 2014, but analysts are not very optimistic on Mayer’s approach to gain revenue.

Analyst Karsten Weide from research firm IDC, who used to work at Yahoo, told USA Today “If they can keep revenue level, that will be a success,” and added “Even that will be a challenge.”

For the first quarter of 2014, Yahoo expects to post EBITDA of $290 million to $330 million, which is a substantial decline in EBITDA margins to about 29% from 37% in the same period of the previous year, according to Sameet Sinha, an analyst at B.Riley.

According to CFO Ken Goldman, Yahoo! Inc. (NASDAQ:YHOO) did not release full year forecast for 2014 because it has yet to analyze the inflection point in revenue trends. The CFO added that the expenses would be at the same level in 2014, and profit margins will be lower due to decline in revenue. Margins have a chance of improvement if revenue increases in 2014.

Display advertising revenue depleting

Main display advertising revenue of Yahoo is depleting in the wake of tough competition from Google Inc (NASDAQ:GOOG), Facebook Inc (NASDAQ:FB) and Twitter, who generate and serve ads in new ways that catch the attention of the advertisers on the web. Share of digital ad revenue for Yahoo came down from 11.5% in 2009 to 5.8% last year, according to eMarketer data.

Recently, COO Henrique de Castro was ousted from the company after not so good advertising results. Castro was offered millions of dollars in severance and other compensation.

“We really lacked a fit here,” said Marissa Mayer, and added that the decision was “regrettable.”

Alibaba growth slowing

Analysts on Wall Street are concerned about the growth of Alibaba, where Yahoo owns a 24% stake.

Alibaba posted an operating profit of $786 million on revenue of $1.78 billion during the quarter ending in September 2013. Revenue at Alibaba surged 51% from the previous year’s corresponding quarter. Though the earnings number were solid, it decline from growth of around 61% in the previous quarter, and 70% a quarter before that.