Can Mobile Ad Platform Boost Yahoo’s Ad Revenues

Yahoo! (NASDAQ:YHOO) has been increasingly looking to address the decline in its ads revenues by developing and delivering content across its mobile platform. To do so, one of the strategies it adopted was to acqui-hire, which is hiring talent through acquisitions, startups in mobile vertical and collate the underlying technologies into products that would bolster its mobile offering. ^[1] By doing so, the company has been trying to boost user engagement, increase unique user count and monetize its content more effectively. While it was successful in boosting its unique mobile user count from 200 million in Q2 2012 to over 450 million in Q2 2014, its ad revenues have yet to gain any traction. ^[2] In order to monetize the increasing user count, the company is now focusing on attracting more advertisers to its platform, and boosting its monetization rate. In this note, we will explore Yahoo’s Gemini ad platform and its recent acquisition of Flurry.

See our complete analysis of Yahoo! here

Gemini Ad Platform

With the advent of smart connected devices, mobile ads are gaining traction. However, because users now view a majority of their content on mobile devices, content is the driving force behind both search and display ad revenues as it affects both users and advertisers on Yahoo. Users care about the quality of content and personalized information, which together lead to better engagement. Advertisers care about audience reach and engagement.

According to eMarketer, Mobile advertising in the U.S. will total $17.73 billion in 2014, with mobile search spending accounting for more than half of that total, or $9.02 billion.((US Mobile Ad Dollars Shift to Search Apps, June 5 2014, www.emarketer.com)) By 2019, Forester estimates that mobile ad spending will reach $40 billion. ^[3]. In order to capitalize on this trend, Yahoo launched the unified ad market place for mobile search and native display advertising in February this year. ^[4] The seamless integration of mobile search with native display ads, which look and act just like the other stories on the page but are marked as ads, not only enhances user experience but can also boost revenue per pageview, as higher engagement leads to increases in pageviews. As a result of these efforts, the Gemini platform represented 50% of Yahoo!’s mobile display revenue in the United States in Q2. Furthermore, both display and search ads grew by 100% in the quarter. Currently, we expect Yahoo’s display ad revenues to increase to $1.8 billion and search ads to grow to $1.6 billion by 2020. If Yahoo can capture a good chunk of mobile ads through its Gemini platform, then its ad revenues can be significantly higher in the future.

Yahoo’s Foray in Mobile RTB Through Flurry

Over the past few years, content providers have been increasingly adopting ad-exchange mechanisms that use real-time bidding (RTB) platforms. An RTB or programmatic platform is a method of selling and buying online display ads in real-time. RTB aggregates impression slots offered across multiple ad networks and matches them (based on advertisers’ target, budget and placement requirements) with the most appropriate ads. Additionally, an RTB employs a dynamic pricing auction method that allows the publisher to supply his impression to the highest bidder at any given time. This results in better cost efficiency, higher performance and greater granularity in targeting and measuring an ad’s effectiveness. eMarketer expects advertisers to spend $4.86 billion on RTB platforms this year, an amount that should increase to $12 billion by 2018. Furthermore, the biggest jump in RTB spending has been in mobile. ^[5] Growth in mobile RTB spending is set to soar even higher in 2014. According to an Adexchanger report, mobile display RTB ads saw a 47% jump in Q1 2014 on a quarterly basis. With this acquisition o Flurry, Yahoo hopes to capture a sizeable share in the increasing mobile RTB business and thereby boost its ad revenues.

Flurry is the industry leader in optimizing the mobile user experience by serving more personal ads. It extensively uses its analytics to provide over 170,000 developers with data to better understand their audience. Furthermore, it also has an RTB platform called the Flurry marketplace that enables automated sales of ads across different ad properties. This foray can significantly boost Yahoo’s mobile ad revenue and resurrect its faltering online ads business.

As we have stated earlier, content is the driving force behind ad revenues. It now plans to combine its customized content with bespoke ads to improve user experience. This can not only improve user engagement but also boost its mobile unique users. The number of unique visitors is vital for Yahoo’s ad revenues as more people visiting the website generally translate into more pages viewed across Yahoo’s websites. Currently, Yahoo’s mobile monthly active user base stands at 450 million. If Yahoo’s mobile monthly active user base were to increase by 50% by 2020, its revenues could be meaningfully higher. 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. Yahoo is ranked third in terms of time spent by a user on the website. ^[6] We expect revenue per pageview (RPM) for Yahoo to improve due to these efforts. Currently, we project RPM for Yahoo to increase to $1.10 per 1,000 impressions by 2020. However, if it were to increase to $1.50, our stock price would increase by 5%.

At present, we have a $34.38 price estimate for Yahoo!, which is in line with the current market price.

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1. Read more about it here [↩]
2. Earnings Transcript Q2 2014 [↩]
3. US Mobile Advertising Spending To Reach $40 Billion By 2019, May 9 2014, www [↩]
4. Introducing Yahoo Gemini, February 19 2014, www.yahoo.com [↩]
5. Entertainment Grabs Biggest Share of Mobile RTB Ad Spend Worldwide, May 8 2014, www.emarketer.com [↩]
6. Most visited websites in the United States in April 2014 by user engagement, May 2014, www.statista.com [↩]