Yahoo Earnings Preview: Turning Around A Ship Takes Time

YHOO: Yahoo! logo

Last year was a tough year for Yahoo (NASDAQ:YHOO) as its gross revenues declined over 20% and the company’s top management was completely reshuffled. Scott Thompson, Yahoo’s new CEO, announced significant business restructuring plans and laid off around 15% of its total workforce, in a bid to cut costs and create a more nimble, efficient structure capable of innovating quickly to compete with online biggies Google (NASDAQ:GOOG) and Facebook.

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Despite its massive user traffic — almost 700 million users across its online properties — Yahoo has seen its share of the display advertising market decline. Yahoo’s primary focus in 2012 is expected to be on better monetization of its digital content, which could help it generate more revenue and protect its online advertising market share.

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Yahoo’s CEO sent out a memo detailing its restructuring plans on April 10. In the note, he reiterated that Yahoo will be focused on three main businesses in the coming years — Media, Connections and Commerce. The Media business includes Yahoo’s online media properties, while Connections include its social offerings like Mail, Messenger, Flickr, etc. Yahoo generates revenues primarily through advertising for both these businesses. The third business – Commerce – is something Yahoo plans to increasingly focus on, going forward. It will primarily be Yahoo’s e-commerce offering in segments such as auto, shopping, travel, jobs, and real estate, for which it plans to leverage its other online services.

In this earnings call, we expect to see more details from Thompson, regarding Yahoo’s plans to more efficiently monetize its media properties and digital content.

Yahoo also announced its intentions to double down on its e-commerce efforts, going forward. That would indirectly pit it against Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY) and other e-commerce giants, as well as Google. Through its commerce division, Yahoo plans to go beyond traditional e-commerce, instead focusing on driving higher ROI for advertisers and agencies by using its massive data sets to generate insights into consumer purchase behavior.

We expect these two businesses to become Yahoo’s major revenue engines, going forward. 2012 may be a new beginning for Yahoo.

We currently have a $18 Trefis price estimate for Yahoo, which stands nearly 20% above its market price. Display and search advertising currently generate most of its revenue, but that could change in the coming time, if Yahoo is able to successfully leverage its massive data sets to enter the e-commerce space.

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