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Yahoo! Going Nowhere

Posted on Wednesday, Jul 22nd 2009

Yesterday Yahoo! (NASDAQ:YHOO) announced Q2 results which managed to meet the market’s expectations but did not do much to boost the stock. Revenues of $1.57 billion declined 13% over the year and 6% on a constant currency basis. EPS grew by a cent to $0.10 against the market’s expected $0.08.

Revenues from display ads on Yahoo! sites fell 14% over the year with US revenues falling 11% and international revenues declining 20%. Search ad revenues fell 15% over the year to $0.36 billion with the US share falling 13% and international search revenues falling 27%. Query volume grew 9% over the year.

Worldwide, Yahoo! was the leading site in news, sports, finance and key entertainment properties. In the US, Yahoo! was ranked the top site in eleven categories and the second site in fourteen categories in June. In fact, they were ahead of the New York Times in the news segment, with 50 million monthly unique users.

Along with their results, Yahoo! rolled out their new homepage, which users can customize and add personalized widgets to display their chosen content on varied topics. The new page also offers direct links to popular social networking sites. The homepage is part of Yahoo!’s ambitious objective of being at the center of consumers’ online lives. Yeah, we’ve been hearing that for a while!

The homepage was launched in the US and will soon be launched in the UK, France and India. Yahoo! hopes to be able to monetize the homepage, also known as project Metro, much better over a period of time. Readers may recall Yahoo! failed to take advantage of its strength in My Yahoo!.

But Yahoo!’s search business doesn’t seem to be improving. Search ad revenues for Yahoo! fell 15% over the year compared to 3% growth at Google. This is despite Yahoo!’s continued search initiatives. Recently they announced the launch of Search Pad, the “online Personal Research Assistant”. Yahoo! claims that the Search Pad will give users a platform on which to create notes based on their search results and share these notes directly with others. Meanwhile, it looks as though after all Microsoft and Yahoo! could finally reach a search advertising deal following last year’s failure to come to an agreement. Good news or bad news? Time will tell.

Microsoft recently launched Bing to good reviews and managed to claim nearly 8% of the search market. Google remains the leader in search with 65% US market share.

Yahoo!’s mobility initiatives are yielding good results. The company’s mobile applications are currently available in 17 countries on over nearly 400 devices, and they are launching applications in nine new countries spanning nearly 100 devices. They are also planning to launch a synch-up facility on the mobile for their new homepage.

Yahoo! maintained their focus on key verticals of sports, finance news and entertainment. Although Hot Jobs is not a vertical of choice, the company is paying it some much-needed attention. They announced a new pricing model for the site, Yahoo! HotJobs Pay Per Candidate, in which recruiters need not pay per listing, but rather for the candidates they ultimately recruit. The innovative model will not only help speed up the recruitment process but should also help recruiters control their budgets — a necessity in the present regime of strict cost controls. However, just how they are going to keep track of who the employer recruits remains elusive to me.

Within ads, Yahoo! introduced a Smart Ads partner program which ties up their reach and targeting capabilities with third-party ad technologies. They piloted the My Display Ad, which is a new self-service solution designed to help small and medium-sized businesses reach their target audiences on Yahoo!. But analysts predict a 5% drop in banner ads during the year, valuing the global ad market at $4.7 billion.

Going forward, Yahoo! plans to spend nearly $75 million on their brand (what brand?), hiring engineers (why?) and improving their services in the current quarter. This is in addition to the $75 million loss of ad revenues they are planning to undergo as they reduce the volume of ads — a move expected to improve user satisfaction. The company expects 3Q revenues to be in the range of $1.45 billion to $1.55 billion with TAC of nearly 26% of revenues and operating cash flows to range from $0.33 billion to $0.37 billion.

So far, I have seen absolutely NOTHING from Carol Bartz on a compelling strategy. She seems to be busy handling changes in the top management. Recently Yahoo! announced that Tim Morse will fill the vacant CFO position, and they appointed Penny Baldwin as of head the Global Integrated Marketing and Brand Management division.

Following the results announcement, Yahoo!’s stock slipped 3% to $16.21 with a market capitalization of nearly $23 billion. At this rate, Yahoo! continues to go absolutely nowhere.

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