Week In Review: Google, Yahoo, AOL, Yelp, Facebook

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Internet stocks started this week off on a strong note. However, the broader market indices gave up gains mid-week on account of profit booking and macroeconomic factors. Internet stocks followed suit, and the NASDAQ Internet (INDEXNASDAQ:QNET) index fell by 100 basis points. Companies in the online ad industry continued to expand their businesses either through acquisitions or by expanding their range of services. In this report, we discuss some of the key events from the past week for Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), Yelp (NASDAQ:YELP), America Online (NASDAQ:AOL) and Facebook (NASDAQ:FB).

Google

Google (NASDAQ:GOOG) continued to expand its services through acquisitions. The latest company to enter its Google X research division’s stable is Lift Labs. [1] Lift labs designs spoons for people with diseases such as Parkinson’s, that are equipped with sensors that detect tremors and cancel them out by as much as 70%. The deal was announced on Google+, but the terms of the deal were not disclosed.  Google has been steadily building up its healthcare portfolio. In January, it unveiled its smart contact lenses, which aid diabetic patients in measuring their glucose levels in tears. And in July it announced an ambitious science project – Basline Study – to collect anonymous genetic and molecular information. Furthermore, the company has also acquired social polling startup Polar. [2]

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AOL

America Online (NASDAQ:AOL) has been focusing on its ad business in order to reduce its dependence on the internet subscription and content business. To further this effort, AOL launched its Devil Ad Suite of premium formats, the Road Devil Interstitial for Mobile (TM).  While we are in the process of evaluating this offering, we believe that TM will help the company capture a chunk of the $20 billion mobile display ad market, particularly over its third party network. Currently, we estimate that display ads on third party sites add the most value to AOL’s stock price. This division can fuel further growth through the TM offering.

Yelp

Yelp’s stock received a shot in the arm as courts ruled in its favor over online ratings. [3] The appeals court said that the online review site is entitled to charge for its ads and is within its rights “to post and arrange actual user reviews on its website as it sees fit.” Currently, we have a price estimate of $60 for Yelp, which is 27% below its current market price of $82.

Facebook

Facebook (NASDAQ:FB) has announced that more people continue to upload videos to its website.  In a quest to improve the user experience, the company has made several improvements to make it easier for people to discover and share videos on Facebook. [4] Facebook currently delivers 1 billion video views per day. [5] It can significantly scale up video views by encouraging more users to upload their videos. Since the company is aggressively pursuing the online video ad industry, this will certainly stir up interest among Facebook advertisers, who can leverage user generated content to showcase their ads.

We estimate revenues of around $12.5 billion for Facebook in 2014, and non-GAAP diluted EPS of $1.73. We maintain a $66 price estimate for Facebook’s shares, which is around 15% below the market price.

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Notes:
  1. Google buys firm behind spoon for Parkinson’s patients, September 11 2014, www.bbc.com []
  2. Google Acquires Social Polling Startup Polar to Improve Google+ Design, September 11 2014, www.mashable.com)) This move is an acquisition-hire aimed at improving its social offering Google+.

    Yahoo

    Yahoo’s stock price was in overdrive during the week as its associate company Alibaba is expected to list in the coming week. However, the highlight of the week was news that the U.S. government threatened Yahoo with huge fines, if it didn’t go along with an expansion of U.S. surveillance by surrendering online information. ((US threatened Yahoo with huge fine over emails, September 12 2014, www.yahoo.com []

  3. Yelp Wins Lawsuit As Court Upholds ‘Hard Bargaining’, September 5th 2014, www.investor.com []
  4. The Latest on Facebook Video, September 7 2014, newsroom.fb.com []
  5. Facebook Highlights Its 1-Billion-Video-Views-Per-Day Reach By Adding View Counts, TechCrunch []