Yahoo Bleeding Purple (and Red)
At this point, the nail in the coffin metaphor has run it’s course; perhaps for Yahoo it’s more like the first sprinkling of dirt on the lowered coffin as it rests 8 feet under.
It is almost quaint to read Yahoo’s justification for knocking back Microsoft last March, just 10 months ago. The plan called for 25% top-line growth this year and next, driven mainly by yield improvements (i.e. CPC on search going up and CPMs on display increasing).
Granted no one saw a financial crisis that would cut so deep and indiscriminately but pegging growth mainly on yield improvement is a particularly vulnerable candle in the economic winds, even in March08.
But enough intro: How did the fourth quarter go? It’s not pretty but it’s not a disaster. International continued to melt (see my previous post here) and the affiliate segment continued to be unwound (suggesting Yahoo is not focusing on being a partner of choice and in my opinion is a much needed deflation in ambition – the company doesn’t need to be chasing MSFT and GOOG in vanity distribution deals).
In a worrying but non-advertising related sign, fees (fantasy sports, premium email etc.) were also down 12% year on year.
And now to the bread and butter: Search on O&O properties was up 11% year on year, which is an amazing feat given Google was up 22% in search and Yahoo is losing market share.
Display revenue though, was down 2% year over year to $506m. Yahoo’s display business is highly skewed to the fourth quarter and this is likely the last that Yahoo’s display revenue will be higher than its search revenue. Compare that to Adsense growth of 4% for Google and it’s not so bad.
Yahoo’s turn around, if indeed it does turn around (see the circus that is AOL and the latest chapter in Schizophrenia), will be long and drawn out. The impatience level of investors will likely not be able to cope with that.
Conclusion: Another snoozer of a quarter and no progress is being made in the improvement of display CPMs and growing core display impressions. It’s going to get a lot worse before it gets better. This year will test the nerve of the new CEO Carol Bartz. If she can hang on to innovation in core web search (i.e. the tech behind the organic results like SearchMonkey) and bid farewell to Panama to Microsoft who are becoming increasing desperate and who can’t realize that the business of ad-representation is a thankless one (they didn’t buy Overture for a reason), then in 3 years the stock will be triple its value today.
