Yahoo Down on Display Ad Revenues, But Not Out

50.10
Trefis
YHOO: Yahoo! logo
YHOO
Yahoo!

Yahoo (NASDAQ:YHOO) is facing continuous pressure from Google (NASDAQ:GOOG) and Facebook in the online advertisement market. The revenue generated by Yahoo for every 1000 pages (RPM) viewed on its owned and operated sites has seen a declining trend since 2007, attributable to a weak macroeconomic environment as well as mounting competitive threats.

Yahoo is making some right moves to improve its monetization rates. While it has shut down under-performing sites, it is focusing on growth areas like video, mobile and social networking. We believe that higher expected users on Yahoo sites and growth in online ad market will lift Yahoo’s display ad revenues in the coming years.

While we expect Yahoo’s revenue per page view (RPM) from display ads will increase to $1.22 by the end of our forecast period, Trefis members predict the revenue level reaching $1.35 implying slight upside to our current estimates. We currently have a Trefis price estimate of $17.88 for Yahoo’s stock, about 7% ahead of the current market price of $16.74.

Relevant Articles
  1. Yahoo Price Estimate Revised To $50 As Company Commences $3 Billion Buyback
  2. Yahoo Earnings: Revenue Decline Continues As Deal For Core Business Closes In June
  3. Yahoo Earnings Preview: Revenue Set To Decline As Slide In Ad Revenues Continues
  4. Yahoo Earnings: Slide In Core Advertising Derails Revenue Growth Once Again
  5. Should Verizon Continue To Pursue The Yahoo Deal?
  6. Yahoo Earnings: Search And Display Revenue Growth Continues To Elude The Company

Yahoo Invests in New Growth Areas

Yahoo’s revenues from the U.S. market declined has been declining (from $4.85 billion in 2009 to $4.43 billion in 2010) while of its competitors like Google and Facebook are rising. Facebook, in particular, has grown phenomenally. Its share of the U.S. online advertising market has nearly doubled from 7.3% in 2009 to 13.6% in 2010. [1]

But Yahoo isn’t laid-back. In the past few years, it has close down under-performing and non-core sites like social bookmarking service Delicious, search engine AltaVista, online news aggregator Buzz, and social network MyBlogLog. It is also investing in growth areas like social media and videos which should draw more visitors to its sites.

Yahoo is improving the amount and quality of its video content across various media verticals like sports, news, finance and entertainment. Videos carry higher engagement levels and hence provide better ad monetization opportunities for Yahoo (See Videos Will Help Yahoo’s Display Ad Business and its Stock). It is also leveraging Facebook’s large user base to attract more traffic to its own sites by installing tools such as “Like” and “Share”. These tools will enable Facebook users to share Yahoo content with their friends, and create a viral effect through which Yahoo can attract more traffic. [2]

Growth in Online Ad Market

We expect online advertising will continue to take away share from traditional media like TV, newspapers, and radio. With that, advertisers will try to consolidate their advertising around big companies like Google and Yahoo, which provide them with unmatched scale and higher visibility. According to eMarketer, the online display advertising market could record consistent double-digit growth over the next few years. [3] This suggests strong opportunity for Yahoo to make a comeback with an improvement in its user engagement level and more number of users to its sites.

Our complete analysis for Yahoo’s stock is here.

Notes:
  1. Wall Street Journal article citing eMarketer as the source, February 2011 []
  2. See: Gotta ‘Like’ Yahoo’s Traffic and Stock Upside from Incorporation of Facebook Tools []
  3. eMarketer report: U.S. online display market forecast, November 2010 []