Submitted by Shreyas Tonse as part of our contributors program.
Yahoo! Inc. (NASDAQ: YHOO) reported results for the fourth quarter and full year ended December 31 2012 on Monday, 28th January 2012. While profits dropped by 8%, revenues rose 2% y-o-y compared to Q4 2011. This is the first time in 4 years that revenue growth has come out of the red.
CEO Marissa Mayer, a former Google executive was cautious as she commented, “While the road to growth is certain, it will not be immediate.” Though the results were not robust, they generally met the expectations of the street.
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Drivers of Revenue
Search Advertising: Search Advertising constitutes around 12% of Yahoo!’s stock price and saw a y-o-y increase of 9%. This growth is largely fueled by the fact that Yahoo! search results are now powered by Microsoft’s Bing search engine and Bing has been witnessing an increasing market share.
This trend is likely to continue upwards as Bing captures more of the market share from Google.
Display Ads: Constituting around 13% of the stock price, Yahoo!’s chief business driver, the display ads segment took a hit with a y-o-y decline of about 5%. Coupled with the fact that ad agencies are not all that excited about Yahoo!’s offering due a lack of creativity, it is quite possible that this might continue to dent the stock price unless Yahoo! is able to revive itself in the Valley and attract smart developers.
Focus is on Mobile
As Yahoo! looks to take on the likes of Google and Facebook, it has realized that it must make swift inroads into the mobile devices platform. It has already launched a revamped Flickr app for iOS devices and redesigned the Yahoo Mail interface on both the Web and for mobile. The strategy has started reaping returns as Yahoo’s mobile platform hit 200 million unique visitors. Mayer has made a strong bet on the mobile platform by acquiring mobile app companies Stamped and OnTheAir and is building a team of mobile engineers. Yahoo! also needs to be innovative when it comes to the mobile platform as its product mix overlaps with that of Google.
If this strategy pays off, Yahoo! would see increased traffic leading to improvement of overall revenues. Margins are expected to remain flattish or might even contract a little due to the increasing competitive landscape.
Currently, I predict a price of $22.45 for Yahoo!’s stock driven largely by the fact that the number of Internet users would increase and thereby both the Display Ads and Search Advertising segments should see a positive rub off.