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Ad agency ZenithOptimedia estimates global ad spending to grow 3.5% this year to $503 billion driven by an increase in digital ad spending. The U.S. remains the largest ad market, with an estimated $109.7 billion in spending. Within the country, digital ads will account for 21.8% of ad spending, compared with 19% a year ago.

Yahoo Financials

Last week, Yahoo (NASDAQ:YHOO) reported its Q3 performance, which was not very impressive. Q3 revenues fell 1% at $1.081 billion compared with $1.089 billion reported a year ago and $1.25 billion projected by the market. EPS for the quarter fell 3% to $0.34, marginally ahead of the market's projected earnings of $0.33 for the quarter.

Analysts are not pleased with Yahoo as advertising revenues continue to dwindle despite the increase in traffic. Although the number of clicks during the quarter grew 1%, per-ad display pricing fell 7%. Within search as well, clicks increased 21%, but ad prices fell 4%. By segment, display revenues fell 7% over the year to $421 million, and search revenues grew 8% to $426 million. Overall, traffic to Yahoo sites has grown back to 2011 levels with more than 800 million monthly users. Mobile active users grew 15% sequentially to 390 million.

According to eMarketer, Yahoo's global share of digital ad spending is expected to slip to 2.97% this year compared with 3.37% in 2012. Meanwhile, leaders Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) see their shares rising to 32.84% and 5.41%, respectively.

For the current quarter, Yahoo projected revenues of $1.18 billion-$1.22 billion, compared with market estimates of $1.25 billion.

Yahoo's Acquisitions

Yahoo continued its acquisition spree, which is being used by CEO Marissa Mayer to drive Yahoo into areas where it has lost ground to competitors. During the recent quarter, the company spent $163 million on acquisitions. Yahoo did not divulge terms of acquisitions for many of these small tech companies. After acquiring Bignoggins, Qwiki, and Xobni earlier in the quarter, it added Admovate, Ztelic, Lexity, Rockmelt, and IQ Engines to its portfolio. Most of these acquisitions are geared toward improving Yahoo's mobile and social media advertising products.

Admovate was a mobile advertising startup, founded in 2012, that was best known for its ad platform that helped personalize mobile ads. Through the acquisition, Yahoo will be able to improve its own mobile ad platform. Yahoo shut down Admovate soon after the acquisition, and the 10 Admovate employees joined Yahoo's display advertising team.

As part of the social media focused acquisitions, Yahoo added Ztilic and Rockmelt. Ztilic was a Beijing-based startup founded in 2012. Ztilic's software analyzes and monitors activities on social networking websites to deliver real-time, customized social information to advertisers and marketers so that they can launch more targeted ads.

California-based Rockmelt has developed a web browser that integrates social media features such as Facebook chat and Twitter notifications with other content providers so that users can send Facebook messages and browse Twitter postings.

To improve its photo sharing site, Flickr, Yahoo also acquired IQEngines. IQEngines is an image recognition solutions provider which has two APIs, including SmartCamera and SmartAlbum. SmartCamera helps consumers learn more about products and brands by using smartphone cameras to scan the images. SmartAlbum uses photo analysis and facial recognition technologies for online photo albums and mobile apps. Analysts expect Yahoo to integrate SmartAlbum with Flickr.

Meanwhile, to improve its existing offerings in e-commerce, Yahoo acquired Lexity. Lexity is an e-commerce app platform that helps merchants build apps to help with customer acquisition, retention, and monetization. The Lexity Live app also analyzes a merchant's store to give insights into ways to improve sales and other metrics.

Yahoo and Alibaba

But Yahoo's acquisitions are not the ones helping its stock rise. Yahoo's biggest value lies in its stake in Chinese e-commerce giant, Alibaba. Alibaba is getting ready to list on the US stock exchange and valuation estimates for the company range from $110 billion-$150 billion. Alibaba's IPO is expected to be bigger than Facebook's, which was valued at $104 billion. Initially, Yahoo was planning to sell its stake in the company. But now it has agreed to retain 60% of its holding in Alibaba. Yahoo currently owns 24% stake in Alibaba and has had a rocky relationship with the Chinese giant. However, things have improved under Mayer's leadership.

Yahoo's Content Expansion

Meanwhile, Yahoo is building onto its content offering and yesterday announced the hiring of New York Times tech reviewer, David Pogue. Pogue has more than 13 years of experience at the Times, where he has written witty and influential tech company reviews since 2000. By poaching him, Yahoo has expressed its commitment to investing in high-quality journalism. Pogue will lead Yahoo's tech coverage site and offer original content via videos and blog posts. While the move may be much appreciated by the journalist community, one cannot avoid being skeptical of Yahoo's capabilities to successfully leverage such talent. Three years ago, Yahoo made a similar move by hiring journalists from publications like Newsweek and USA Today, but nothing great came out of it.

Yahoo's stock is trading at $33.43 with a market capitalization of $34.11 billion. It touched a five-year high of $35.06 earlier this month. Shareholders are counting on Alibaba, not Marissa Mayer!

Source: Yahoo Counts On Alibaba, Not Marissa Mayer