Web 3.0 & Yahoo! (Part 1)

Introduction

Founded in 1994 by Stanford Ph.D. students David Filo and Jerry Yang, Yahoo! began as a hobby and has evolved into a leading global brand that has changed the way people communicate with each other, conduct transactions and access, share, and create information. Today, Yahoo! Inc. has become the world’s largest global online network of integrated services with more than 500 million users worldwide. According to comScore Media Metrix, Yahoo! properties with 135.6 million users (in September 2007), is the #1 site in the US.

I have written at length about Yahoo! Here are some of my previous posts on the space:

* 4C: The Yahoo Turnaround Formula
* Web 3.0 & Yahoo! Personal Finance
* Yahoo can kill Google AdSense for Content
* Yahoo! One Up On Google
* Web 3.0 & Yahoo! Travel
* Web 3.0 and Yahoo! HotJobs
* Terry Semel Steps Aside, New Horizon in Sight?

Yahoo! has been facing steep competition from its rival Google in its search business. According to comScore Media Metrix, Google Sites maintained its position atop the core search rankings with 57% of U.S. searches, gaining a half point in September 2007, versus the previous month. Yahoo! Sites ranked second with 23.7% (an increase of 0.4%), followed by Microsoft Sites (10.3%).

The Company has made a number of interesting acquisitions in the past one-year and is rumored to be eyeing entry into the social networking space through a big bang acquisition but we haven’t seen any big move from the Company as yet. In July 2007, the Company acquired Right Media Inc., an online advertising exchange for $526 million. During the nine months ended September 30, 2007, the Company acquired four companies, which were accounted for as asset acquisitions.

The Company is rumored to have acquired BuzzTracker, a news aggregator in September 2007 for $4 million. It is also rumored to have acquired college sports network Rivals.com for $100 million. The Company has closed its acquisitions of Zimbra and BlueLithium for $350 million and $300 million respectively. The Company also purchased a 1% stake in Alibaba.com for $100 million. RightMedia and Blue Lithium are good moves in response to the audience fragmentation going on, and the rise of Ad Networks. What’s still missing from Yahoo’s strategy is an understanding of the Vertical Ad Network trend.

In 3Q07, Yahoo’s revenues were $1,768 million, an increase of 12% over the same period in the previous year. $1,544 million of revenues came from the Company’s marketing services, which experienced 13% growth. Fees revenues were at $224 million, an increase of 7%. Operating income for the third quarter of 2007 was $150 million, a 26% decrease compared to $202 million for the same period of 2006.

Free cash flow for the third quarter of 2007 was $310 million, an 8% increase compared to $288 million for the same period of 2006. Net income for the third quarter of 2007 was $151 million or $0.11 per diluted share compared to $159 million or $0.11 per diluted share for the same period of 2006. During the quarter, the Company attracted 463 million users, up 13% compared to third quarter of 2006.

We will take a look at Yahoo’s Internet properties in the following posts, with a particular focus on the vertical strategy. As you know by now, my instinct is that Yahoo should focus on the key verticals, while Jerry Yang has decided to chase Google’s tail with a horizontal strategy. I guess, he is trying to play in his comfort zone, however uncomfortable that zone may be for investors.

(To Be Continued)

This segment is part 1 in the series : Web 3.0 & Yahoo!
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