Yahoo just announced its results for the first quarter of 2014. The shares jumped up 7% or so, not quite to the heights at the end of 2013, but close. At first glance it looks like Marissa Mayer is coming up to 2 years at Yahoo with signs of some operational improvement, perhaps even the long waited turn around.
But then I came across this article in the Atlantic:
How Is Yahoo So Worthless? - Derek Thompson - The Atlantic
The argument is that Yahoo shares have doubled over 2 years because of the increasing value of their share in Alibaba and Yahoo Japan.
Now, there can be a lot of discussion on how to correctly value the interest in these assets. Wall Street certainly seem very excited about the potential value of Alibaba, and Yahoo is the only way to play it. However, there are likely complex tax implications once the IPO happens, expected in Q3 this year, so the valuation in the chart above is perhaps inflated.
However, perception and belief play a larger role in financial valuations than is admitted by the industry paid for their data and analytics. So, what signs are there that Yahoo's core business is worthless, or simply not yet very valuable.
1) Search revenue has reported healthy growth since Marissa came on board. Yahoo now reports Paid Clicks and PPC, which are both showing growth. However, clicks can be 'optimized', and so are not a direct reflection of the longer term health of their Search. Comscore publishes Search engine query share every month, and this shows a disappointing tale. Since 2010, Google has steadily increased from 65.1% to 67.5%, while Microsoft and Yahoo have traded places. It seems unlikely that Yahoo can continuously growth search revenue if these are reflective of user trends.
comScore Releases March 2014 U.S. Search Engine Rankings - comScore, Inc
2) So, if search looks a little precarious, how about Yahoo's traditionally strong area of Display advertising?
Unfortunately, the experts only see Yahoo as a smaller player here over time too. eMarketer predicts 2% growth this year in a market growing at 23%, so losing share to Twitter, Facebook, Amazon, Google, Linkedin and even AOL and IAC.
Report: Facebook Pulls Ahead Of Google In US Digital Display Ad Revenues
Yahoo's results did show 2% growth and some encouraging growth in display ad impressions, improving on prior quarters. They talk of traction in Mobile and Native, although they do not break out specific numbers for those yet, so it's an area to watch over subsequent quarters. But like search, the important question is whether Yahoo will have the Users to advertise against.
3) Mayer has talked about improving growth in its traffic, with a focus on Mobile. However, it still seems like Yahoo is still the PC Internet portal trying to find its place. Looking through the app store, it is hard to find any yahoo apps consistently in the top 100.
It is striking to look at data on email client market share. Despite Yahoo's strong history in Email, the impact of Mobile (Apple and Android) seems to have cut the older Internet mail providers (Yahoo, Microsoft (hotmail/live), AOL) out of the continued growth in EMail traffic.
Email Client Market Share and Popularity - March 2014
The acquisition of Tumblr, perhaps like that of YouTube for Google, has brought in a large and growing source of traffic. Mayer's track record on product may help Yahoo get the traffic growth here, but this will undoubtedly be a multi-year journey to get to significant revenues. In the meantime, investors will be waiting for a rabbit to be pulled out of the hat of new product innovation.
So, it does seem that Yahoo is not yet positioned for solid revenue growth, and there have not yet been any user hits visible in her first 20 months. The next one or two earnings cycles could be challenging for the young CEO, depending on how much cover she continues to get from Alibaba excitement.
But then I came across this article in the Atlantic:
How Is Yahoo So Worthless? - Derek Thompson - The Atlantic
The argument is that Yahoo shares have doubled over 2 years because of the increasing value of their share in Alibaba and Yahoo Japan.
However, perception and belief play a larger role in financial valuations than is admitted by the industry paid for their data and analytics. So, what signs are there that Yahoo's core business is worthless, or simply not yet very valuable.
1) Search revenue has reported healthy growth since Marissa came on board. Yahoo now reports Paid Clicks and PPC, which are both showing growth. However, clicks can be 'optimized', and so are not a direct reflection of the longer term health of their Search. Comscore publishes Search engine query share every month, and this shows a disappointing tale. Since 2010, Google has steadily increased from 65.1% to 67.5%, while Microsoft and Yahoo have traded places. It seems unlikely that Yahoo can continuously growth search revenue if these are reflective of user trends.
What could Yahoo do to gain more users, to gain
more share and then revenue. Having the best product would clearly help gain
more users, and perhaps Marissa can bring her skill to this. But in today's
mobile environment dominated by Apple and Android (Google), a significant
distribution deal is needed. In the early PC Internet days, Google took AOL
away from Yahoo to initiate its' drive to leadership.
However, the experts do not seem to think this
likely. Danny Sullivan lists 5 reasons why he does not see fruition in recent
rumors of Yahoo courting Apple
- Building new search technology from scratch is hard
- Using Bings technology isn't a better pitch to Apple than using Bing itself
- Apple doesn't want to risk a repeat of Mapgate with Searchgate
- Spending whatever to gain the new share might not pay-off in the long-term, if people go to Google anyway
Unfortunately, the experts only see Yahoo as a smaller player here over time too. eMarketer predicts 2% growth this year in a market growing at 23%, so losing share to Twitter, Facebook, Amazon, Google, Linkedin and even AOL and IAC.
Report: Facebook Pulls Ahead Of Google In US Digital Display Ad Revenues
Yahoo's results did show 2% growth and some encouraging growth in display ad impressions, improving on prior quarters. They talk of traction in Mobile and Native, although they do not break out specific numbers for those yet, so it's an area to watch over subsequent quarters. But like search, the important question is whether Yahoo will have the Users to advertise against.
3) Mayer has talked about improving growth in its traffic, with a focus on Mobile. However, it still seems like Yahoo is still the PC Internet portal trying to find its place. Looking through the app store, it is hard to find any yahoo apps consistently in the top 100.
It is striking to look at data on email client market share. Despite Yahoo's strong history in Email, the impact of Mobile (Apple and Android) seems to have cut the older Internet mail providers (Yahoo, Microsoft (hotmail/live), AOL) out of the continued growth in EMail traffic.
Email Client Market Share and Popularity - March 2014
The acquisition of Tumblr, perhaps like that of YouTube for Google, has brought in a large and growing source of traffic. Mayer's track record on product may help Yahoo get the traffic growth here, but this will undoubtedly be a multi-year journey to get to significant revenues. In the meantime, investors will be waiting for a rabbit to be pulled out of the hat of new product innovation.
So, it does seem that Yahoo is not yet positioned for solid revenue growth, and there have not yet been any user hits visible in her first 20 months. The next one or two earnings cycles could be challenging for the young CEO, depending on how much cover she continues to get from Alibaba excitement.
Comments