Yahoo! (NASDAQ:YHOO) is increasingly launching new products to boost its floundering online ads business. Earlier this year, the company launched digital magazines namely Yahoo Food and Yahoo Tech that curate content, videos and photos from Flickr and across the web. Additionally, the company acquired Aviate to further strengthen its mobile platform.  Over the past few quarters, the company is integrating technologies from the acquired companies within its products. For example on June 23, the company launched the full scale version of Aviate, the Android app that caters to home screen launch.  Also according to recent news reports, the company has incorporated Tumblr’s advertising technology into its digital magazines.  We believe the company is trying to boost user engagement, increase unique user count and monetize its content more effectively through these efforts. In this note, we will explore how these efforts can help Yahoo.
New Technology To Boost Revenues Through Increase in Unique Visitor Count And Engagement
Display ads revenues are one of the leading driver of Yahoo stock and make up almost 12% of our estimated value. Content is the driving force behind display ad revenue and affects both users and advertisers on Yahoo. While users care about the quality of content and personalized information, an advertiser wants to improve user engagement to boost the stay time on a web page during which more impressions/ads can be shown.
In order to increase user count, Yahoo started offering customized content to individuals based on their search history and sharing patterns on social media. As a result of these initiatives, Yahoo reported a jump in monthly unique visitors from 676 million in 2012 to over 800 million in 2013. With new product launches, especially on its mobile platform, Yahoo is aiming to increase its unique user count further. We currently project the number of unique users across Yahoo’s properties to rise 890 million per year by the end of our forecast period in 2020. If the number of unique visitors to Yahoo properties reached 1 billion per year, as a result of product launches and improved content, this would increase our price estimate by 5%.
However, the increase in the unique user count has not yet translated into growth in revenues. While the increase in the number of unique visitors generally can translate into more pages viewed across a website, a high bounce rate (the percentage of users that did not proceed further into the website after entering it) indicates users are not engaged. Through the integration of technology acquired from Tumblr, Yahoo aims to combine its articles and material licensed from other sites, as well as photos and videos, into an endless page of tiles aimed at enhancing user experience, and in the process improve user engagement. As user engagement and unique user counts increases, we expect Yahoo!’s page views per unique visitor to rise. We currently forecast page views per unique visitor to decline to 150 by the end of our forecast period, but if these launches could increase user engagement and page views increase to around 190, we would see approximately 5% upside to our price estimate.
We currently have a $34.83 price estimate for Yahoo!, which is in line with its current market price.
- Yahoo Unveils New Products and Experiences for Smartphones, Web, Tablet and TV at CES 2014, January 7 2014, investor.yahoo.com
- Yahoo’s Aviate Intelligent Home Screen App Launches for All, Gains Useful New Features, June 23 2014, www.yahoo.com
- Yahoo Wants You to Linger (on the Ads, Too), June 21 2014, www.nytimes.com
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