Seeking Alpha
Research analyst, oil & gas, tech, mid-cap
Profile| Send Message|
( followers)

2013 was the 'Year of acquisitions' for Yahoo (YHOO); it ended the year acquiring online video startups Evntlive and Ptch. While Evntlive allows users to stream live concerts and events on their PC, Ptch is a mobile video app that lets users remix their videos. Post-acquisition, these companies will merge with Yahoo's video unit. The acquisition demonstrates Yahoo's efforts to enhance its offerings in video services, where it is facing intense competition from giants like Google (GOOG), Facebook (FB), and AOL (AOL).

Top U.S. Online Video Content Properties (December 2013)

Property

Total unique viewers

Videos ('000)

Google sites

159,090

13,384,434

Facebook

79,105

3,749,940

AOL

76,178

1,414,138

Yahoo sites

53,499

392,542

(Source: comScore)

Total Online video views exceeded 50 billion a month for the first time, and video ads tripled to 35.2 billion in December 2013 from a year ago. Online video ownership is increasing and video content is also easily available due to the proliferation of PCs, notebooks, and mobile devices. As a result of growing viewership, companies are spending more on online advertisement, and video ad spending is expected to be $5.75 billion in 2014 from $4.14 billion in 2013.

With a monthly viewership of 53.5 million, Yahoo is still far behind Google's 159 million unique viewers and Facebook's 79 million unique viewers in December 2013. Yahoo has a limited inventory of online video content compared to Google. However, it could leverage its diverse content ranging from Sports, Finance, Weather, etc. to build a solid video offering. Its recent acquisitions are aimed to capitalize on the growing online video industry and regain its position in the online industry. Yahoo aims to streamline its advertising products by refocusing on search, content, and video. Google has already demonstrated that monetization of video services (5-second ads) is not only possible but also garners significant ad revenue for the company. YouTube is expected to garner $5.6 billion of ad revenue in 2013. Yahoo is trying something similar by building a diverse content database to attract more traffic on its site. The growing importance of advertising on social networking sites has pulled a lot of advertisers' interest and presents a headwind for the company.

Facebook launched auto-play video ads in December 2013. These ads will automatically play in a user's feed but video sound or full screen will only be activated once the user clicks on the ad. The price of each ad depends on how large of an audience base the company wants to target and will range from $1 million to $2.5 million a day for a 15-second ad. Although this rate is premium compared to regular TV ads, the success of these ads depends on how effectively Facebook is able to target the audience without diminishing the user experience. These ads could generate around $1 billion in revenue for the company in 2014. This will help Facebook expand its video ad offering beyond promoted posts and successfully monetize it. Although Facebook is trying to avoid oversupply of ad loads, advertising demand from a number of companies and marketers continues to grow. Thus, it is looking at different mediums and formats to display advertisements, given that supply is still trailing strong demand.

Monetizing the mobile segment

Yahoo ended the year with two acquisitions and started the new year with an acquisition of Aviate this month. Aviate displays relevant information on Android phones, matching it with the daily habits of the smartphone user. Aviate will play a major role in Yahoo's vision of providing an Android-based experience in 2014. Similar to Google Now, Aviate provides information based on users' interest and search history. The difference is that Aviate does this on the user's home screen. It's still not exactly clear how Yahoo will integrate this Android launcher in its business, but the company plans to use Aviate's technology to deliver content through mobile devices.

Yahoo has seen mobile monthly active users increase from 390 million in October 2013 to 400 million mobile monthly users, representing half of the 800 million total monthly users. Yahoo has been building a line-up of applications for smartphones and tablets to attract more advertisers to this segment. In addition, Yahoo is rolling out more advertising tools, which make it easier for advertisers to connect with people interested in their products and services. The same targeting technique had proven effective for Google and Facebook. I think, Yahoo's mobile metrics and acquisitions should help it realize mobile advertising revenue, which would drive the company's total revenue. Yahoo is moving in the right direction with the increase in the number of ads, but the declining price per ad is a worry for the company. Yahoo's mobile monetization will pay off if it is able to expand its advertiser base.

Yahoo has acquired start-ups not only to gain technology, but also to build a developer team to put more strength into its mobile strategy, which is to create apps to communicate with users in their daily activities.

Apart from building a strong position in mobile, Yahoo is aggressively gathering capabilities in the content production. The hiring of media personality Katie Couric and acquisitions of Evntlive and Ptch indicate that it is not only looking to attract more audiences, but also to keep them engaged to ensure they keep coming back for more. If Yahoo is able to achieve such a feat, I don't think top-line growth would be a problem for the company.

Bottom-line

There is no doubt that much of the hype created around Yahoo is due to the rising valuation of the Alibaba and Yahoo Japan (OTCPK:YAHOY) stake, and its renewed focus on products and mobile could result in a turnaround story for the company. We have seen some signs of a turnaround, such as toppling Google as the most-visited site and the fact that the share price has more than doubled since Marissa Mayer's arrived. The flat top-line growth and declining bottom-line is the main concern. Yahoo has increased its pace of product improvement and innovation with the aim of increasing traffic on its websites. I remain bullish on Yahoo and expect upside potential in its stock in the long run.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Fusion Research is a team of equity analysts. This article was written by Rohit Gupta, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article

Source: Yahoo: The Acquisition Festival Continues