Yahoo Earnings Preview: Mobile Platform And Acquisitions In Focus
Quick Take
- Yahoo has acquired 17 companies in the last few quarters, and most of these acquisitions have been in the mobile application space. CEO Marissa Mayer should explicitly state her strategy for these acquisitions and Yahoo’s mobile platform.
- The recent acquisition spree has depleted Yahoo’s cash reserves, and we want an update on its cash reserves and if more acquisitions are likely.
- We expect the company to report growth in the number of unique mobile users which can bolster its core display and search ads revenues.
Yahoo! (NASDAQ:YHOO) is set to report its 2013 second quarter earnings on July 16. Ever since CEO Marissa Mayer has taken over the company, she has been expanding Yahoo’s product portfolio through acquisitions. (See A Recap Of Yahoo’s Acquisitions This Past Year) In this earnings announcement, we will be looking for clarification on how Yahoo plans to integrate these acquisition-hires into the company.
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Additionally, we will be closely following the display and search ads division of Yahoo. These divisions form Yahoo’s core business activity and have consistently lost market share to competitors. In Q1, Yahoo’s display ads business decreased by 10% y-o-y to $455 million while its search ads business declined by 10% y-o-y to $425 million. Yahoo has taken prudent steps to address the decline by building a stronger mobile platform. In this earning announcement, we will be closely monitoring the effect of mobile platform on these divisions. Additionally, we will be monitoring the increase in unique users count for Yahoo’s mobile platform.
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Impact of Acquisitions On Yahoo’s Cash Position
Yahoo has been focusing on gaining talent through acquisitions and accelerating its mobile development efforts and content personalization. It has acquired 17 companies in the past year. Last week, Yahoo announced that it has acquired three more companies. While it acquired Bignoggins Productions and Qwiki in mobile application vertical, Yahoo also added the email and address book management app Xobni to its portfolio. At the end of Q1, Yahoo had $3 billion in cash and short term marketable securities. Since Yahoo has financed most of these deals through cash on its books, we believe that Yahoo has depleted much of its cash reserves. In this earnings announcement, we will be closely monitoring Yahoo’s current cash position as it will help us in assessing whether Yahoo can continue to acquire more companies going ahead. [1] Moreover, these acquisitions will impact Yahoo’s margins due to acquisition related costs and higher wage payout to new hires. We, therefore, are closely following its profit margins as this will impact Yahoo’s bottom line growth going forward.
Growth In Mobile Subscriber Base In Focus
Yahoo’s core businesses of display and search ads revenues are struggling due to intense competition and low monetization rates. However, Yahoo is addressing this decline by increasing its focus on developing and delivering content across its mobile platform. Mobile devices are logging higher web traffic than traditional PCs, resulting in higher Internet page views. [2] Additionally, Cisco projects mobile data traffic will grow at a compound annual growth rate (CAGR) of 66% from 2012 to 2017. ((Global Mobile Data Traffic Forecast Update, 2012–2017, Feb 6 2013, www.cisco.com))
We believe that mobile will be key to Yahoo’s long term health. In Q1, Yahoo’s total mobile unique visitors hit approximately 300 million. According to Q1 earnings announcement, Yahoo has increased its focus on display ads for its mobile platform. In this earnings announcement, we will look closely at display ads revenues due to more ads offered on its mobile platform.
Moreover, as the number of users on its mobile platform grows, more content will be consumed across Yahoo’s websites leading to higher page views and searches across all Yahoo platforms. In this earnings announcement, we want to know the impact on Yahoo’s revenue per search (RPS) due growth in search from mobile devices. Additionally, we will be closely monitoring the growth in unique mobile visitors that will indicate whether Yahoo has been able to engage more users across its mobile platform.
We currently have a $23 price estimate for Yahoo!, which is approximately inline with the current market price.
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Notes:- See A Recap Of Yahoo’s Acquisitions This Past Year [↩]
- Tablets trump smartphones in global website traffic, March 6 2013, blogs.adobe.com [↩]