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Yahoo In Limbo

Posted on Friday, Oct 21st 2011

According to eMarketer, Yahoo is expected to command 13.1% of display ads this year compared with 14.4% a year ago, as social networking leader Facebook’s share is expected to climb to 16.3% from 12.2% last year. U.S. online ad spending is to grow 20% this year to $31.3 billion, but given Yahoo’s situation, they may not benefit as much from this growth.

Yahoo’s Financials
Yahoo’s (NASDAQ:YHOO) Q3 revenues fell over previous year’s $1.12 billion to $1.07 billion. EPS of $0.23 fell 20% over the previous year’s $0.29. The Street was looking for revenues of $1.07 billion with EPS of $0.17.

By region, revenues from the Americas fell 12% over the year to $753.7 million, while revenues in Asia grew 20% over the year to $221.6 million. Display ad revenues remained flat at $449 million in the quarter while search revenues fell 13% over the year to $374 million.

Yahoo expects current quarter revenues to be $1.13 billion-$1.24 billion compared with the market’s target of $1.21 billion.

Yahoo’s Possible Sale
After having disappointed investors over the past few terms, Yahoo finally fired their CEO, Carol Bartz. While Bartz did improve Yahoo’s earnings, her key failing was in an inability to improve the company’s market share and resume revenue growth. Also, a cohesive strategy continued to elude Yahoo.

According to acting CEO Timothy Morse, the new management was “actively looking at the full range of options available to return the company to a path of robust growth and industry-leading innovation.” A sale looks like a possible option. In fact, since Bartz was ousted, speculation that Yahoo will be broken up and sold to multiple buyers has pushed up the stock from $11 a share to above $16 levels.

Alibaba’s chief, Jack Ma, is said to be in discussion with Silver Lake and Russia’s Digital Sky Technologies to make a joint bid for Yahoo’s Asian assets, which include stakes in Alibaba and Yahoo Japan. Yahoo’s 43% Alibaba stake is valued at $13 billion. Of late, rumors are rife that Ma may have collected the required $20 billion to buy out the entire Yahoo! group. In addition, private equity buyers such as Providence Equity Partners Inc. and corporates such as Microsoft are rumored to be evaluating a possible buyout.

Yahoo’s Content
Yahoo continued to improve content and recently entered into an alliance with ABC News. Yahoo’s 9/11 anniversary site generated more than 300 million page views and more than 250 million photo views. They are also delivering exclusive content, such as the online interview with President Obama two weeks ago and the live broadcast of a Clinton Foundation concert.

Within video, they recently launched their new video destination, Yahoo Screen. Besides access to all of Yahoo’s TV shows and premium video content, the revamped portal will have women focused original Web shows. They have aggregated video content across all Yahoo’s verticals and have also entered into a licensing agreement with Hulu, CBS, UFC, and Revision3. They also launched Yahoo! News activity which integrates with a user’s Facebook friends and lets Yahoo users discover content on Yahoo! News by seeing what their friends are reading.

Yahoo’s future will be decided in the coming quarters. It will be interesting to see if the company can manage to remain an independent Internet jewel of yesteryears or instead become a part of another Internet giant.

Meanwhile, their stock is trading at $16.23 with a market capitalization of $20.43 billion. It touched a 52-week high of $18.84 in May of this year.

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