Can Google Girl Save Yahoo?

Leo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

After four months at the helm, Yahoo! (NASDAQ: YHOO) CEO Marissa Mayer has finally revealed her opening gambit -- a radically new home page, its first redesign after four dark years. Yahoo struggled in those four trying years, under the leadership of controversial CEO Carol Bartz, who surrendered much of Yahoo’s once dominant market share to Google (NASDAQ: GOOG) and Facebook (NASDAQ: FB). Does Mayer, who’s certainly easier on the eyes and ears than her predecessor, really stand a chance at reviving this fading tech icon? Let’s analyze the challenges that Mayer will face in her quest to save Yahoo.

“To delight and inspire”

37-year old Mayer, the youngest Fortune 500 CEO ever, was also Google’s first female engineer. After spending 13 years at Google and building much of the company’s cloud-based ecosystem, Mayer has stated that she will revive Yahoo as a service that can “delight and inspire” its users.

Yahoo.com’s new design is cleaner and more minimalistic than its previous iterations, which used more cluttered, skeuomorphic designs. The tweaks to the page are geared towards returning visitors, using prior search histories and related information to create a targeted news feed experience.

A ‘shinier’ online newspaper

Yet under its shiny surface, it is still the same portal website it’s been since the 1990s - an online newspaper unifying different stories from various sources, attempting to keep the user corralled within its domain - and thus generating advertising revenue - for as long as possible.

Mayer’s redesigns, which include a news feed that can be scrolled infinitely downwards, reflect this desire. News stories also display a short snippet of text from the underlying story, which helps the feed flow smoother on mobile devices.   

Google and Facebook

Yahoo’s decline at the hands of Google and Facebook has been well documented, but Yahoo.com remains one of the most visited sites on the Internet. Last month, its webpage attracted 392 million visitors worldwide - a 7% increase from the previous year. It remains ahead of Microsoft’s aging, comparable portal, Msn.com, which logged 334 million visits. But both of these sites pale against Google and Facebook, which both recently reported over a billion unique monthly visitors.

Y’all come back now, y’hear?

Although Yahoo still has a strong user base, it isn’t attracting many return visits. Google locks users into its ecosystem with YouTube, Google Drive, Google Maps and Android, which all feed its main search engine’s targeted advertising revenue. Meanwhile, Facebook has perfected the art of addiction by catering to the users’ need to be constantly connected and acknowledged - across smartphones, tablets and computers.

Yahoo appears to be attempting to build an ecosystem of its own, even if it means piggybacking off of other more successful sites. On the right column of the new site, users can find connected Facebook and Picasa accounts, as well as stock quotes and sports scores. This may eventually include other associated sites that can be integrated into Yahoo’s own fledgling ecosystem.

Although the new page is a step in the right direction, it still sorely lacks the firepower to take on Google and Facebook, and the company’s top and bottom line meltdown over the past five years reflects this.

YHOO Revenue Per Share TTM data by YCharts

While Yahoo seems to be scraping the bottom of the barrel at this point, it’s important to note that its diluted EPS actually rose over 300%, after the company’s ad revenue posted unexpected gains last year. However, revenue has slid 19% as it continues to lose ground against its competitors.

The raw fundamentals, however, tell a different story.

  Forward P/E 5-year PEG Price to Sales (ttm) Debt to Equity Return on Equity (ttm) Profit Margin
Yahoo 17.38 1.45 4.88 0.85 29.06% 79.12%
Google 14.92 1.27 5.23 10.05 16.61% 21.40%
Facebook 34.84 1.64 12.77 20.04 0.64% 1.04%
Advantage Google Google Yahoo Yahoo Yahoo Yahoo

Source: Yahoo Finance

Yahoo actually has a far stronger margin than either Google or Facebook, as well as lower debt and a higher return on equity. These ratios suggest that Google has actually hit a growth bottleneck, and its margin and debt levels are suffering as a result of its acquisition of Motorola. Facebook’s numbers are all over the map, as the company is still untested after less than a year on the market, but none of its numbers are promising.

Judging from this next chart, it’s clear that investors have taken notice of Yahoo over the past twelve months.

YHOO data by YCharts

Yahoo surprisingly outperformed both of its rivals. While that growth will hardly satisfy those long-term shareholders still fuming over Jerry Yang’s refusal of Microsoft’s buyout offer of $31 per share back in 2008, it’s nonetheless a step in the right direction.

The Foolish Bottom Line

Although Marissa Mayer has just started making changes at Yahoo, I think the company is headed in the right direction. The company no longer needs to reclaim its throne from Google - it just needs to develop a niche - as AOL did - and make it profitable. Today’s Yahoo resembles Google in simpler times, before Android, Motorola, wind farms and driverless cars. As a programmer who was responsible for most of Google’s most popular features - including its iconic, minimalistic homepage - Mayer has given shareholders what was once lost under Bartz’s reign - hope.


leokornsun owns shares of Facebook. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. 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!

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