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Yahoo continues to sputter as services fail to excite

No matter how hard Yahoo tries to restore its luster as a top Internet destination, its shares of China's e-commerce giant Alibaba are all anyone seems to care about. Still, CEO Marissa Mayer keeps trying. Her latest move: A new search-ad deal with Google.

CEO Marissa Mayer has reiterated Yahoo's plans to spin off its 15 percent stake in Alibaba as quickly as possible. Britta Pedersen/dpa/Corbis

Here's something to plug into Yahoo's search field: How do you make the Internet giant exciting again?

That's the question CEO Marissa Mayer has been wrestling with after spending the past three years working to reinvigorate Yahoo. Since joining from Google, Mayer has overhauled its mobile strategy, bought new companies and struck a deal with the NFL.

Alas, investors care about one thing: Yahoo's 10-year-old stake in Alibaba. The Sunnyvale, California-based Internet portal invested in Alibaba when it was a fledgling e-commerce service in the promising Chinese market. Now, it's an Internet giant in its own right.

Mayer on Tuesday reiterated Yahoo's plans to spin off its 15 percent stake in Alibaba as quickly as possible. The prospects of a spinoff grew cloudy in May, when the IRS proposed rule changes that would raise taxes on any deal. Yahoo has said it still plans to spin off its stake even if it means a big tax hit.

"In addition to sharpening focus within core business growth, our top priority is the planned spinoff of Aabaco Holdings," Mayer said in a press release. (Aabaco is the holding company that will own the Alibaba stake.)

The Alibaba news obscured a fundamental problem at Yahoo. The Internet pioneer can't wow consumers anymore. That's let rivals like Google and Facebook snatch away users and, more importantly, the advertising revenue they drive. On Tuesday, Yahoo said it reached a deal with Google to provide Yahoo with search advertisements on its mobile and desktop search engine. Yahoo already has a deal with Microsoft to use its search technology.

The slow spiral was evident in Yahoo's earnings results released Tuesday. In the three months ended September 30, sales were $1.23 billion, missing analyst expectations of $1.26 billion. Profit, excluding costs such as adjustments for stock-based compensation, was 15 cents a share. Analysts expected profit of 17 cents a share.

Yahoo's stock fell nearly 2 percent to $32.30 in after-hours trading.

Since joining Yahoo, Mayer has sought to refocus the company on mobile services. That's a recognition of the shifting ways in which we look at websites.

Under Mayer's tenure, the company has revamped all of its mobile apps and services, from Sports to Weather, and she's spent more than $2 billion on more than 50 acquisitions to bring in new talent and tech. Mayer has also made big bets in media, including inking a deal to live-stream an NFL game for the first time in her bid to make Yahoo a relevant online destination again.

The efforts haven't made the splash Mayer wants. In August, eight of the top 10 smartphone apps in the US were made by Google or Facebook, according to market tracker ComScore. Yahoo's only spot in the top 15 comes through a partnership with Apple. The Yahoo-powered stocks app that comes automatically loaded on iPhones is No. 11 on the chart.

Yahoo has also tried to convince people its main products business is headed in the right direction. Last week, the company released a major revamp of Yahoo Mail, which is in some ways the cornerstone of its business. The update includes a feature that lets people log in to their email account without passwords, a first for any major email provider.

Jan Dawson, chief analyst at Jackdaw Research, said the attention around Alibaba has been a "salvation" for Mayer, especially as she struggles to lure users back to Yahoo. "It's bought her some time," Dawson said. "But she hasn't been able to do very much with it."