Yahoo (NASDAQ:YHOO) is mired with several problems with the departure of CEO of Carol Bartz, steadily declining advertising revenues and speculation of a merger with AOL or buyout by a consortium led by the Alibaba Group. Its search alliance with Microsoft (NASDAQ:MSFT) Bing hasn’t produced significant results either, and it continues to face severe competition from Google (NASDAQ:GOOG) in search ads and Facebook in display ads. Nevertheless, Yahoo still enjoys strong traffic and has stakes in valuable assets in Asia that it could leverage to improve its advertising revenues.

Complete analysis for Yahoo’s stock is here.

Yahoo’s Declining Search Market Share

Yahoo has been under continuous pressure from Google in the search advertising market. This has resulted in its market share declining from close to 11% in 2008 to 6.45% currently by our estimates. Even its alliance with Bing to power Yahoo search results hasn’t produced meaningful results.

According to comScore, Yahoo and Bing’s combined market share in the U.S. increased by just 1% from Dec 2010 to Aug 2011. While this lags its business suffers as evidenced by its Q2 2011 revenues dropped close to 45% over the last year.

Asian Assets and US Traffic Still Attractive to Some

Yahoo has a significant stake in Asia, particularly in Alibaba and Yahoo Japan. While the company’s market share globally has been declining, it continues to do well in Japan. It introduced Yahoo! Phone a few months ago to provide pre-installed Yahoo services such as Yahoo Japan Home, Yahoo Japan Auctions and Yahoo Loco to improve its search traffic.

There is also speculation of Yahoo being bought by Alibaba, in which Yahoo has a stake of 43%. We wrote in a previous note that it this deal goes through Alibaba with its e-commerce expertise can make significant inroads in the U.S. market by leveraging Yahoo’s U.S. web traffic. (See Alibaba’s Bid for Yahoo Makes Sense if Shareholders and Authorities Consent)

According to ComScore’s top 50 web properties in the U.S. for August 2011, Yahoo ranked 2nd after Google with 177.5 million unique visitors and its ads had a reach of 87.4% among Americans online.^[1] So while it lags behind Google in terms of unique visitors and penetration, it still ranks above other major online players like Microsoft, Facebook, and Amazon for traffic.

While we estimate Yahoo’s search market share will decrease from 5.4% in 2012 to 3.9% by the end of our forecast period, Trefis members expect it to drop off from around 6% to 5.7% during the same period. The member estimates imply an upside of 5% to the Trefis price estimate for Yahoo’s stock.

We currently have a Trefis price estimate of $17.70 for Yahoo’s stock, which is about 20% above the current market price.

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