Competition from Google and Facebook Hitting Yahoo Ad Revenues

March 24th, 2011 by Trefis Team
50.10
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Yahoo (NASDAQ:YHOO) has shut down a number of under-performing and non core sites in the last few years. This includes social bookmarking service Delicious, search engine AltaVista, online news aggregator Buzz, and social network MyBlogLog to name a few. [1] Yahoo competes with Facebook, Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and AOL (NYSE:AOL) in the online advertisement market, with Facebook and Google the most potent threat to Yahoo.

Here we analyze Yahoo’s current struggles in the online advertisement market and the company’s efforts to alter this trend. We currently maintain a $17.88 price estimate for Yahoo stock, roughly 10% higher than market price.

Yahoo Losing Ground to Facebook and Google

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Yahoo’s revenues from the U.S. market declined from $4.85 billion in 2009 to $4.43 billion in 2010, [2] while the overall U.S. online advertising market increased from around $23 billion in 2009 to $26 billion in 2010. [3] Even the time spent on Yahoo sites has gone down over the last year or so. [4] This data illustrates that Yahoo is losing ground to Facebook and Google. By shutting down under-performing sites, Yahoo further risks losing a considerable number of loyal users, which exceeds 600 million at present.

See our full analysis and $17.88 price estimate for Yahoo

Yahoo Looking to Make a Comeback

Shutting down under-performing sites does not mean that Yahoo is completely cutting down on investments. It is trying to invest in growth areas like video, mobile and social networking.

With videos, Yahoo is improving the amount and quality of its 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).

Yahoo has also undertaken an initiative to leverage Facebook’s large user base to drive traffic to its sites. It has installed Facebook tools such as “Like” and “Share” buttons on its sites, creating a viral effect as Facebook users share Yahoo content with their friends (See Gotta ‘Like’ Yahoo’s Traffic and Stock Upside from Incorporation of Facebook Tools).

Notes:
  1. Wall Street Journal article, December 2010 [↩]
  2. Data obtained from Yahoo’s annual filing, January 2011 [↩]
  3. eMarketer: U.S. online advertising market for 2010, March 2011 report [↩]
  4. Marketingcharts citing Comscore as the source, % time spent on top 5 U.S. web properties [↩]