Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Nearly three months ago, former Google executive Marissa Mayer took the reins at Yahoo! (NASDAQ: YHOO). In her first remarks since taking over as head of the internet search company, she has buoyed investor confidence for sure.
Yahoo! shares starting increasing when Mayer began speaking to analysts about the company’s better than expected Q3 results and her plans to reinvigorate the consumer internet company. Yahoo! shares rose $0.73 to $16.50 in after hours trading that day.
Mayer stated that, “I came to Yahoo! to grow and help redefine one of the Internet’s most beloved companies,” she said. “The core components of Yahoo!’s business--search, mail, ads, news and home page--are also the core products that I’ve built my career on.”
Mayer’s new direction for the company seems to be mobile-driven. This is an essential step for the company, as more and more people are browsing the internet on mobile platforms, as opposed to computers. The good news for the company is that most of its core products, like the ones mentioned by Mayer above, are very mobile compatible. Mayer also hinted to the possibility of acquisitions worth under $100 million or less.
So when the stock price went up during Mayer’s conversation, it was a faint sign of confidence from investors in either her ability or her plans. The question is, can Yahoo! go back to its glory days, or will it be forced to play second fiddle to companies like Google (NASDAQ: GOOG) and Facebook (NASDAQ: FB)? The number’s that have come out of Yahoo! in the recent past are a little encouraging.
Yahoo! earned $3.2 billion, or $2.64 a share, in the third quarter. Most of the profit came from a one time gain of $2.8 billion for the sale of half the stake the company had in the Chinese Internet company Alibaba. A year prior, Yahoo! earned $293 million, or $0.23 a share. If not for Alibaba and a restructuring charge, the company claimed it would have earned $0.35 a share, above analyst estimates of $0.26 a share.
Among many other risks for Yahoo! are the fact that they’re now quite far behind in a tightly contested space. Like Google or Facebook, the company is highly dependent on advertising revenue. Googl, has such well indexed search pages and a good record of customized targeted ads, that it is without doubt the market leader in this space. They have captured a large segment of marketers thanks to Yahoo!’s fall. With this profit margin secured, the company has been able to attack different fronts – entering mobile markets with the Android or making tablets such as the Galaxy Nexus, or even the newly unveiled Samsung-made Google Chromebook. All of these forays into different sectors are to deepen the level of content that the search provider has already archived.
Facebook has sought to address their growth problems by attempting to go mobile, something that I had written about before and stressed would be essential for any attempt to monetize the social networking service. If you’ve recently accessed Facebook on a tablet or a mobile device, you would have seen a few sponsored ads on your Newsfeed. The company reported that its revenue had increase 32% in the last quarter. Advertising sales grew at a faster rate than the previous quarter, and here’s the clincher – about $150 million, or 14%, of the company’s $1.09 billion in ad revenue came from ads shown on smartphones or tablets.
There are still a lot of risks for these companies as they attempt to switch over from a computer platform to the mobile platform. One problem is that according to a recent Google earnings report, advertisers generally pay a lower rate for ads on mobile gadgets, although the company did mention that they were going to gain $8 billion in annual revenue from its mobile business. The other risk is that increasing popularity of mobile devices cause web advertising business to decline at a rate faster than mobile ads can grow.
In addition, Yahoo! faces certain fundamental problems. For example, it is quite obvious that the company is over-staffed, and lay-offs seem to be a given. The company will need time to turn around, a fact Marissa Mayer acknowledged when she said she will need multiple years to turn around the company’s fortunes. With that statement, she’s given investors the option to decide whether they want to stay with her for the project or not, and currently it seems like they want to stay.
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ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook, Google, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.