How Mobile Ads Can Boost Yahoo’s Floundering Revenues
Yahoo! (NASDAQ:YHOO) has made little headway in revenue growth in the previous years despite the strenuous efforts of its management. However, it has made a significant push into the mobile domain and the Q3 results indicate substantial progress. Yahoo’s mobile revenue for Q3 was $271 million, up from $207 million in the year ago period, an increase of 31% year over year. This growth contributed at least 24% of Yahoo’s traffic-driven revenue. [1] In this note, we explore how the mobile ads industry is trending and how Yahoo might benefit from the growth in mobile ads.
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The Global Mobile Ads Industry
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According to eMarketer, the global online ads industry will continue to grow in the near foreseeable future, albeit at a slower rate. However, mobile ad spending is set to outpace online ads spending primarily due to the increasing use of smartphones that is expected to reach an installed base of over 6 billion users by 2020. [2] As a result, eMarketer estimates that online mobile ad spending in 2015 is expected to improve to $72.06 billion. [3] Furthermore, it expects that mobile ad spending will increase to $198.81 billion by 2019, led by increased spending in North America ($69 billion or 34.7% of total) and Asia-Pacific ($83 billion or 41.8% of total).
How Yahoo Can Benefit From Growth In Mobile Ads?
In order to shore up its revenues, Yahoo is focusing on rolling out more content and ad formats for its mobile platform, developing more videos and investing in its programmatic platform. Specifically to capitalize on the trend in mobile programmatic platform, Yahoo launched the unified ad market place for mobile search and native display advertising in February last 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.
According to eMarketer, Yahoo is all set to capture over a billion dollars worth of revenues from mobile vertical in 2015, which is on par with the expected market share of Twitter (in the U.S.). Currently, we expect Yahoo’s display ad revenues to increase to $1.83 billion and search ads to grow to $2.5 billion by 2022. If Yahoo can capture a good chunk of mobile ads through its ads and development efforts, then its ad revenues can be significantly higher in the future.
Smartphone Penetration To Boost Consumer Base And Page views
As stated, smartphone use is on the rise and the installed base is expected to increase to over 6 billion by 2020. Currently, Yahoo’s mobile monthly active user base stands at 600 million. If this base were to increase by 50% by 2020 (due to improvement in user engagement on smartphones), its revenues could be meaningfully higher. According to Yahoo, American consumers spent 220 minutes per day on their mobile devices in Q2, a 35% increase in time spent from one year ago and a 24% increase from Q4 2014. [5] Better content and user engagement usually translates into an increase in 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 be $0.92 per 1,000 impressions by 2022. However, if it were to increase to $1.50, our price estimate would increase by 5%.
At present, we have a $35.86 price estimate for Yahoo!, which is 5% above the current market price.
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- Earnings Transcript Q3 2015 [↩]
- The number of smartphone users in the world is expected to reach a giant 6.1 billion by 2020, June 3 2015 [↩]
- Total Media Ad Spending Growth Slows Worldwide, September 15 2015 [↩]
- Introducing Yahoo Gemini, February 19 2014, www.yahoo.com [↩]
- Seven Years Into The Mobile Revolution: Content is King… Again, August 26 2015 [↩]
- Most visited websites in the United States in April 2014 by user engagement, May 2014, www.statista.com [↩]