- Yahoo needs to address its faltering display ads revenues. Its search ads division, which reported growth in 2012, will be a key growth driver in future.
- A strategy for monetizing its mobile platform for display ads division and search ads division needs to be stated explicitly.
Yahoo! (NASDAQ:YHOO) is set to report its 2013 first quarter earnings Tuesday, April 16. During the fourth quarter of 2012, we got an insight into CEO Marissa Mayer’s strategy for turning the company around. While Yahoo reported an increase in revenues for the first time since 2008 in 2012, the company still needs to improve its core business to sustain growth in the coming years. Although, Yahoo reported an increase in unique visitors across its properties in the fourth quarter in 2012, it reported a 5% decline in its display ads business. This quarter results will be crucial as it is the first quarter in which Mrs. Mayer has taken aggressive steps to boost revenue growth, operating income and cash flows.
In this earnings announcement we will be closely looking for clarification on how the CEO plans to address the faltering display ads division. Additionally, we will be closely following the search ads division, which has consistently lost market share to competitors. Yahoo had taken prudent steps to address the decline by building a strong mobile platform. (Yahoo! Earnings: Mayer Lays Foundation For A Turnaround) However, in this earnings announcement, we want to know more about Yahoo’s plan for monetizing its mobile platform.
Measures To Address Decline In Display Ads
According to our estimates, the display ads segment is the biggest of Yahoo’s operating segments and makes up approximately 15% of the company’s value.
At present, Yahoo’s display business seems to be struggling with rising competition. Last quarter, display ad revenues decreased 5% year-over-year to around $520 million. What puts this dismal growth number in perspective is that global display ad spending was expected to increase by almost 20% during 2012, which shows that Yahoo is doing a poor job of capitalizing on online ad spending growth. 
During this earnings announcement, we expect to see Mayer laying out a clear growth plan for the display ads segment. We know that the high level strategy will be focused on content and social media, but we would like to know more about new products release for bolstering display ads revenue.
Search Advertising Are Key For Yahoo’s Long-Term Health
While display advertisements constitute the majority of the company’s operating value, search advertising also contributes to around 10% of total value and around 35% of value if non-operating segments are removed. Last quarter, search ad revenues increased 14% year-over-year to around $427 million. While this is not a huge portion at present, search ads will be very important for the company’s long-term prospects.
A tie up with Microsoft’s (NASDAQ:MSFT) Bing search engine was instrumental in turning Yahoo’s search ads division around. Despite this partnership, Yahoo has consistently lost market share in search ads division. To address this decline, Yahoo has increased focus on developing a strong mobile search platform. The search market is saturated, but we think that an opportunity exists for Yahoo, if it can attract new Internet users to its sites via the mobile platform. Since mobile is going to be a key source of overall industry search revenues going forward, we expect that the management will announce concrete steps to address search ads space through its mobile platform. 
We currently have a $21 price estimate for Yahoo!, which is approximately 10% below the current market price.
- Why Google Doesn’t Own the Next Chapter in Web Ads, AllThingD
- Gartner Worldwide Mobile Advertising Revenue, January 17, 2013, www.gartner.com
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