Yahoo Focuses On Content, Not Web 3.0 – A Mistake

According to eMarketer, U.S. Internet ad revenues will increase 10% over the year to $28.5 billion in 2011. Total online ad spending in the U.S. grew 14% over the year last year to $25.80 billion. Google will remain the leader in online ad revenues, and these revenues are estimated to grow 23.5% over the year to $12.4 billion this year. Yahoo! will remain the second-biggest player, but its overall online ad revenues are expected to fall 2% over the year to $3.4 billion. Social network leader Facebook should have the biggest growth: ad revenues are expected to increase 81% over the year to $2.19 billion.

Yahoo!’s Financials
Yahoo!’s (NASDAQ:YHOO) Q1 revenues fell 6% over the year to $1.06 billion. Search revenues for the quarter fell 19% over the year to $0.36 billion. During the quarter, display ad revenues grew 10% over the year to $0.47 billion. EPS for the quarter fell to $0.17 from $0.22 reported a year ago. The market was looking for revenues of $1.05 billion with earnings of $0.16 per share.

For the current quarter, Yahoo! expects revenues of $1.075 billion to $1.125 billion with an operating income of $160 million to $190 million. The Street was expecting revenues of $1.1 billion.

Yahoo!’s Search Business
Last year, Yahoo! announced a constructive partnership with Microsoft to leverage the Bing search engine. But according to Yahoo!, Microsoft’s ads are underperforming and resulting in declining search revenues. Microsoft’s adCenter, the pay-per-click advertising technology, has had “technical limitations” resulting in lower click volumes for ads. The implementation of adCenter in other countries besides the U.S. has been put on hold till the partners resolve the technical issues with the platform.

Meanwhile, Yahoo! is working on improving the search experience and recently launched Search Direct, a tool that provides answers as a user types a query.

Yahoo!’s Tablet Offerings
Recently, Yahoo! previewed Livestand, a digital newsstand that offers content to users, based on their interests. Livestand has initially been launched for tablets and will let publishers and advertisers distribute content across tablets and mobile phones. The company also introduced a MarketDash app, a tablet app for Yahoo! finance.

Yahoo!’s Content Focus
Of late, Yahoo! has been focusing on improving content. It recently launched 31 additional sites across the Americas, EMEA and APAC on its new global content platform as part of that initiative. Further, it introduced newer content sites such as Yahoo! Safely, a global resource that informs caregivers and young people in their native languages about topics such as managing digital reputations and avoiding cyber-bullying, and educates them on how to minimize risks on mobile devices.

Yahoo!’s original video programs increased its audience 80% over the year, with time spent on the sites doubling over the year. “Primetime in No Time” had more than 500 million total streams in the quarter and was the most watched online show ever. The news trivia program “Who Knew” has become a leading online show with more than 5 million visitors. Yahoo! continued to launch new programs withing their verticals such as “Breakout” in Finance and “omg Now” in Entertainment.

Recent market rumors mention that Yahoo! has been evaluating a $7 billion deal to sell its 40% stake in Yahoo! Japan. No formal deal has been announced as yet. Yahoo! is said to be preparing for a big year of acquisitions and is thus possibly looking at cashing in on some of their assets.

Yahoo’s stock is trading at $16.85 with a market capitalization of $22.1 billion. It touched a 52-week high of $17.84 in February of this year.

Yahoo! continues to focus on content, a move that I believe is at best a Web 2.0 strategy, and has failed to improve its community, personalization, or vertical search features in context. I hope that the company is considering vertical-specific assets such as Seeking Alpha and Bleacher Report as potential targets.