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Is Yahoo Heading Into The Right Direction?

August 06, 2014 | About:
Suravi Thacker

Suravi Thacker

1 followers

With the warmer weather setting in, earnings season is expected to bring good news for most of the investors. However, there are companies which continue to underperform, making investors doubtful about their investments. The global technology company Yahoo (YHOO) reported its second-quarter results recently. The numbers were quite below the expectations, enabling its share price to fall. Let us get into its details.

The lackluster quarter

Revenue dropped 4% to $1.04 billion, over last year’s quarter, whereas analysts were expecting it to be at $1.08 billion. One of the key factors that affected the top line was display ad revenue of the company. Revenue from this segment decreased 8% over last year.

It faces stiff competition from other players in the display advertising space. For instance, Google (GOOGL) and Facebook led the list of the top players in this segment. Although Yahoo was in the third position, Microsoft is expected to take its position in the near future, according to the research firm eMarketer.

Also, Yahoo’s market share is expected to drop to 6% from 7.1% in the previous year. This will bring in bad news for the company since the overall display ad market is estimated to gain 23.8 by the end of this year. Another important factor which led to the drop in display sales was a drop of 24% in price per ad, on an annual basis.

On the other hand, search advertising was one of the key drivers of revenue. Revenue from this segment climbed 2% to $428 million, over the previous year. Also, Yahoo has 450 million monthly users on mobile. In fact, Yahoo Screen, the company’s video site, registered an increase of 67% in its views. Further, the technology company is taking measures to increase its viewers by adding a new season of NBC sitcom Community and many daily concert broadcasts.

Moving down to the bottom line, Yahoo’s earnings stood at $0.37 per share, lower than the expectation of 0.38 per share. This was mainly because of higher costs and a lower top line, which weighed on the income of the company.

Google is indeed a better player than Yahoo and leads the mobile as well as display ad segment. This is probably the reason why Google is able to provide a return of 6.8% to its investors, since the beginning of the year. On the other hand, Yahoo’s stock price has decreased 11.4%, during the same period.

What to expect?

In order to combat competition, Yahoo plans to strengthen its video streaming business. Therefore, it acquired RayV, a provider of video-streaming services, against Google’s YouTube, the most popular among customers. The deal was closed on July 11, 2014. This is not the first time that Yahoo has used acquisition to grow its business. It had acquired Tumblr last year, which added 100 million users to Yahoo’s customer base.

Also, Yahoo announced that it has to sell a less number of shares of Alibaba Group, a Chinese e-commerce company which is going public this year. This news made investors happy, sending Yahoo’s share price higher.

Summarizing

Yahoo is indeed facing tough competition from its peers. Google is much bigger in size and reach. However, Yahoo is taking steps to overcome it. Its recent acquisition too should help in giving a competitive edge. Also, new shows added to Yahoo Screen should help in adding users. Moreover, stake in Alibaba has been one of the biggest boons for the technology company. However, because of a lackluster quarter, a dull outlook and inability to outperform its peers, Yahoo looks unattractive at this juncture.


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