Yahoo!‘s (NASDAQ:YHOO) stock has appreciated by nearly 40% since the middle of 2012. The primary reason for this has been the appointment of Marissa Mayer as CEO in July 2012, and her ‘user first’ strategy that focuses on developing user centric customized products. Yahoo, a leading online content provider, has consistently lost market share in ads vertical to competitors such as Facebook (NASDAQ:FB), Google (NASDAQ:GOOG) and AOL (NYSE:AOL).
Going ahead, the best way to counter the decline in display ads revenue and grow the subscription business is to provide high quality content that engages users and directs more traffic to Yahoo websites. With increased usage of mobile devices for accessing Internet, an effective mobile platform has become an important tool for online Internet company. We believe that customized content deliverable across mobile platforms will be a key growth driver for Yahoo in the future.
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Why Is Customized Content Important For Yahoo?
Display ads revenue is the leading driver of Yahoo stock and currently makes up almost 15% of its value. Content is the driving force behind display ad revenue and affects both users and advertisers on Yahoo. Users care about the quality of content and personalized information, which leads to better engagement. Yahoo has started offering customized content to individuals based on their search history and sharing patterns on social media.
As a result of these and other initiatives to bolster its content, Yahoo has reported a jump in monthly unique visitors from 154 million in June 2012 to over 167 million in January 2013.  The number of unique visitors is vital for Yahoo’s display ad revenue as more people visiting the website generally translate into more pages viewed across Yahoo’s websites. We currently project the number of unique users across Yahoo’s properties to rise from 676 million to 725 million per year by the end of our forecast period in 2019.
If the number of unique visitors to Yahoo properties reached 850 million per year as a result of improving content, this would increase our price estimate by 5%.
Better content and user engagement can also increase the time spent on the website and advertisers are willing to pay higher revenue per impression for these sites. According to AC Nielsen, Yahoo is ranked third in terms of time spent by a user on the website.  We expect revenue per page view (RPM) for Yahoo to improve due to these efforts and project RPM for Yahoo to rise from $1.50 per 1000 impressions to around $1.70.
Consolidating Mobile Applications Can Bolster Unique User Base
Yahoo is consolidating its mobile platform in order to have limited applications that are more user-centric. It plans to reduce its mobile offering from 60-75 apps to a more manageable 12-15, which will provide user-centric content and aid in increasing unique users to the Yahoo website.  Yahoo has reported that its mobile users base crossed 200 million unique users for the first time in the last quarter. This has lent credence to Yahoo’s strategy for attracting more users to its mobile platform by providing customized contents over fewer apps.
We currently have a $22 price estimate for Yahoo!, which is approximately the same as the current market price.Notes: