Is Yahoo! Worth Considering?
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Yahoo! (NASDAQ: YHOO) has been struggling to recapture its former glory, trying desperately to overcome missteps. Current CEO Marissa Mayer comes with an impressive resume, an engineer background, and has already demonstrated a willingness to make hard decisions. With Mayer at the helm is Yahoo worth exploring?
The Problems With Yahoo!
The company isn’t without its flaws, perhaps the most glaring being the steady decline in traffic to its web properties. In its heyday, Yahoo was the dominant web portal, and one of the major search engines. Google’s (NASDAQ: GOOG) rise to power undercut Yahoo’s search dominance, and the subsequent rise of social media siphoned off even more traffic. While Yahoo used to release traffic and engagement data, the company has since ceased that practice, though the last data points showed a dismal trend.
Another issue, sparked in part by the company’s reduced relevance, is the striking amount of talent that has left Yahoo over the past few years. Founder Jerry Yang was one of the first, but since then the company has lost plenty of talent. Mayer’s recent move to eliminate working from home will likely cause more to leave, though the pool of work-from-home employees is relatively small.
The final issue is Yahoo itself. The company has long been a little bit of everything, a search engine, a media aggregator, an email service, and a loose collection of other assets. Without direction the company will continue to underperform and struggle for relevance.
Why Believe in Yahoo Now
The first, and most obvious reason is the presence of Mayer. She brings quite a bit to the table, including experience at one of Yahoo’s main competitors. Mayer was the twentieth employee at Google and played a key role in several of its hottest properties, including Google Search, Gmail, and Google Maps. She also has a deep background in engineering and design. Perhaps most importantly she has already demonstrated a willingness to lead. Say what you will about the work-from-home controversy, but one thing is clear, she is willing to make an unpopular decision and stick with it.
Her willingness to lead will come in handy as she looks to pare down Yahoo’s footprint and refocus the company. To that end the company recently announced it was cutting several projects, and is looking to reduce several dozen apps to a handful of high use ones. It also helps that she’s notoriously data driven, a trait that lends itself to managing a company filled with engineers.
In its recently filed 10-K Yahoo made a change that helps answer the question of identity. After referring to itself as a “premium digital media company” for years, the company now considers itself a “global technology company focused on making the world’s daily habits inspiring and entertaining.” This goes hand in hand with the company’s focus on mobile and content discovery. It also distances itself from the digital media moniker, which was ill-defined and helped lead to scattered initiatives.
The focus on mobile makes sense, though it is somewhat risky. Mayer has referred to mobile “a nascent source of revenue,” something that must change rapidly. The upside is that nobody has quite figured out how to monetize mobile but a massive amount of resources are being poured into just that. For instance, Facebook (NASDAQ: FB), which has a larger mobile presence, has been working hard to monetize its 618 million active daily mobile users and has made impressive headway. Mobile was responsible for almost a quarter of its Q4 revenue after being essentially zero in the previous year’s fourth quarter. Facebook’s success proves that mobile works and that it can quickly become a major source of revenue.
In the end the biggest reason to bet on Yahoo is the company’s existing assets. Despite the declining viewership and engagement metrics, Yahoo still commands an impressive amount of traffic and daily users. According to a recent report from comScore, which can be accessed here, Yahoo was the number two web property in the US, right behind Google at number one. That means Yahoo beat out Microsoft, Facebook, and even Amazon. The company had 186,599,000 unique visitors, while Google had 190,753,000. While it lagged Google by more than 4 million visitors, Yahoo still commands an enormous amount of traffic domestically. Things aren't quite as rosy in the search engine space, but Yahoo is still the third largest search engine in the US. For January, Yahoo was in third domestically, behind Google and Microsoft. Google commands the lion's share of the search market, but at 12% of the market, Yahoo still has a notable presence.
Yahoo seems to be poised for a comeback of sorts. While its current position isn’t all that dire, it does need to make changes to regain its former dominance. Yahoo must better capitalize on its current properties and rapidly expand the quality of its mobile offerings. If the company makes any headway in that direction, it is certainly a tech stock worth watching.
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