Yahoo!: A SWOT Analysis
Ishfaque is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The stock price of Yahoo!! (NASDAQ: YHOO) has been on the rise for the last year. The company made a number of acquisitions recently and is taking strides towards improving its user experience. In addition, the prospects of an Alibaba IPO are getting some investors more excited about an investment in Yahoo!! A look at Yahoo!'s SWOT is warranted to see the possible strategic shifts that might take place in the near future.
Crown jewels: The biggest value in Yahoo!! lies in its Asian equity holdings comprised of Yahoo! Japan and Alibaba Group. Yahoo!! is increasingly reliant on these two equity investments for generating earnings for the company and in enhancing the intrinsic value of the firm. In 1Q13, the combined earnings from these two assets made up 56% of Yahoo!'s net income. Yahoo!'s 24% stake in Alibaba could be worth more than $20 billion pre-tax, and its 35% stake in Yahoo! Japan is worth more than $9 billion on a pre-tax basis. And both of these assets are growing rapidly and increasing the overall value of Yahoo!.
Display properties: Yahoo! has a very strong footing in certain display categories like Yahoo! Finance, Mail, News, Sports, and Entertainment etc. And Yahoo! is increasingly making the monetization of its display assets a priority, and enhancing its user interface. Recently, Yahoo! got into an agreement with Google (NASDAQ: GOOG) to portray display ads on various Yahoo! properties and certain sites, using Google’s AdSense for Content and AdMob technologies. With this partnership, Yahoo!’s network of advertising partners will expand enabling improved monetization for its various display assets.
Brand and user traffic: In spite of its lackluster revenue growth and lack of product innovation, Yahoo! remains a very well-known brand across the world. Yahoo! is one of the highest traffic Internet platforms in the world with more than 700 million monthly users, and trails only Google, which has more than a 1 billion users across its search platform and Facebook (NASDAQ: FB) which has more than 1.1 billion monthly active users. And Yahoo!'s recent changes on its web platform, has led to increased user engagement as well. In May, the amount of time spent on Yahoo!.com increased by 36% year over year in the U.S., according to comScore.
Losing ground in Search: Yahoo! is losing ground in the very competitive market for search. Yahoo!'s partnership with Microsoft (NASDAQ: MSFT), under which Yahoo!'s search results are powered by Bing, hasn't seen much improvement. Microsoft is gaining ground in the search market, and Google remains the ten thousand pound gorilla in the space. In the U.S. market, Yahoo! has only 11.4% market share, whereas Google has 66.7% and Microsoft has almost 18% of the pie, according to comScore. However, Yahoo! is working to get more distribution to put Yahoo! search boxes in third party sites, to improve its market share and monetization potential going forward.
Weak monetization: Yahoo!'s monetization of its various consumer Internet assets has been less than impressive. The company's core display advertising business hasn't seen any growth ever since 2010 and has been flat. And on search Yahoo!'s revenues have declined drastically from 2010. Yahoo! needs to effectively monetize its massive user audience in both desktop and on mobile.
Video properties: Yahoo!'s various properties have a lot of video content, and the company is increasingly aligning itself to grow its video views and monetization. The online video business is a fast growing one, and increasingly becoming more competitive. Yahoo! has added small amounts of original programming for some of its offerings, and hopes to earn more revenues from online video ads. As video ads on the Web have much higher prices compared to other online advertising mediums, the company can grow this segment in the future meaningfully.
Social Media: Yahoo!'s purchase of social blogging platform, Tumblr for $1.1 billion has been a great step towards becoming a more social platform. The fast growing Tumblr has more than 300 million monthly visitors and is particularly popular among the younger generations. And Tumblr has a strong presence on mobile, and gives Yahoo! a solid presence in the rapidly growing segment of mobile advertising. Yahoo! has fallen behind larger Internet rivals, Google and Facebook, in terms of having a solid footing on mobile, and Tumblr seems like a great way to enhance its position on mobile devices.
Mobile and Photo: Yahoo! recently disclosed that its user base on mobile has crossed more than 300 million monthly users. And it is working on ramping up its presence on mobile to keep up with secular trends towards smartphones and tablets. The company's management is working towards developing more consumer friendly mobile apps and redesigned services of its existing products. The company's Flickr photo service has been redesigned in order to stimulate consumers and get more people to stay on apps for a longer timeframe. If Yahoo! can develop a more compelling strategy on mobile devices the company's impressions on mobile will grow as well, which will create incremental revenue sources.
Competition for Users: No surprises, the global growth in Internet usage and companies has led to fierce competition for user eye-balls and user engagement. Yahoo!'s biggest competitors including Microsoft, Google and Facebook have very big fan-followings and most of which compete directly with a number of Yahoo! offerings.
Online advertising market: Online advertising marketplace is intensely competitive with companies of numerous sizes vying for advertising dollars. Yahoo! has been losing out to bigger rivals in the space in terms of monetizing its search and display businesses, as advertisers have embraced more popular consumer platforms like Google and Facebook. The U.S. digital ad market grew more than 15% in Q1 F'13, according to the Interactive Advertising Bureau, but Yahoo!'s revenues have actually declined roughly 7% lagging the growth of the sector.
Yahoo!'s investment holdings are becoming invaluable, but the core businesses haven’t seen much growth. The company has taken steps in the right direction by growing its presence on mobile, video and social media. And if Yahoo! can get more consumer impressions by making more changes to its user interface, the company can do very well in the future.
Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook, Google, and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!