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Looking Beyond Yahoo!'s Short-Term Pain

August 12, 2014
rusticnomad

rusticnomad

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Yahoo! (YHOO) is on a roll. The company has been doing well and has integrated Tumblr into its digital magazines, allowing it access to a tremendous platform for creators and curators to share. With moves like this, Yahoo! seems well-positioned to deliver more growth in the future. Let's take a look into Yahoo's prospects.

Smart strategies

Tumblr also proved to be an incredible canvas to bring brands to life unconstrained by cookie-cutter pages or character limits. The monetization of Tumblr with native Tumblr-sponsored posts clubs the creativity of Tumblr with the scale of Yahoo! and allows advertisers to smoothly promote their content and their brands across the Yahoo! Network.

In addition, the need for high-quality engaging brand content is expected to grow exponentially with the industry trends shifting towards more and more digital advertising. Also, 65 of the AdAge top 100 brands are already utilizing the Tumblr platform to create and share content.

Yahoo! has continued to focus on video with investments in unique premium content.

Already doing well

Yahoo! witnessed a 22% quarter-over-quarter increase in daily active users on Yahoo! screen and saw a 29% increase in daily active page views representing a 67% year-over-year increase. The video business of Yahoo! is building the foundation for more meaningful user and advertiser growth in the future.

Yahoo! has recognized the premium to be an essential part of its business that merits investment, especially in content and is continuously investing in editorial to increase the quality of its media offering, improve engagement across its verticals and ensure premium inventory to attract advertiser demand.

Global PPC for Yahoo! increased 15% on a year-over-year basis and clicks increased 3% through continued innovation in science, its user experience and its partnerships, it continues to expand its massive search business.

The ability of Yahoo! to focus and execute has led to some dramatic and critical changes. The monthly active user base of Yahoo! has dramatically increased from just above 200 million monthly active users in 2012 to 450 million monthly active users in the second quarter, which represents more than 100% growth in just two years. Additionally, mobile has also delivered significant changes in engagement with the time spent on mobile growing 79% in just one year alone.

Yahoo! holds a 23 percent stake in Alibaba and now has to sell only 140 million shares in the IPO, a decrease from 208 million shares decided the previous year. This will reduce the immediate windfall of Yahoo! from the Alibaba IPO and is also considered to be a long-term bet on Alibaba's success.

Yahoo! is committed to returning at least half of the after-tax IPO proceeds to shareholders, in line with its primary commitment to maximizing shareholder value through judicious capital allocation.

Conclusion

According to Yahoo! Finance, the trailing P/E and forward P/E ratios of 28.17 and 18.93, respectively, indicate robust cost-cutting efforts by the technology giant. Moreover, it’s better than the industry’s average P/E of 34.62. The profit margin is solid at 27.56%. The revenue per share and diluted EPS of $4.53 and $1.20 signify satisfactory investment returns.

Therefore, investors are advised to overlook the short-term weaknesses and concentrate on the company’s solid long-term growth prospects as illustrated by a bottom line CAGR of 9.08%.


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