Yahoo Still Faces A Big Challenge In Mobile

| About: Yahoo! Inc. (YHOO)


Apple slights Yahoo with the creation of its own weather app with a partnership with the Weather Channel.

Yahoo has increased unique users to over 400 million.

After the Alibaba IPO, Yahoo must move aggressively to increase its mobile presence.

Yahoo Still Needs To Go A Long Way To Gain Recognition In Mobile

Internet information provider Yahoo (NASDAQ:YHOO) must use the IPO of Alibaba and look forward to how the company is going to grow in the mobile industry. The news leader of a decade ago has proven to be slow on its feet to show internal core growth, despite the success of several acquisitions over the past decade.

CEO's Admission

The company's president and chief executive officer Marissa Mayer, who came from search engine giant Google (NASDAQ:GOOG), (NASDAQ:GOOGL), has admitted recently that Yahoo needs to do a lot in mobile since it has shown it can deliver moderate success with its mobile weather app. Recognition is half the battle, execution is the other half, and Mayer has the first part covered, as she pointed out during TechCrunch Disrupt;

[Mobile is] a really critical issue. It's certainly one of the biggest missed opportunities that I saw when I came here.

The Internet information provider's acquisition of Tumblr's app is not even among the top 100 in the App Store, according to Michael Arrington, TechCrunch founder.

Yahoo turned towards the mobile segment only after Marissa Mayer entered the company in July 2012 and found that the company was missing opportunities there. She had to move swiftly to see that Yahoo improved its mobile offerings. The CEO recently indicated how much mobile is critical to the company.

Investing In Mobile

It was only in 2013 that the company started its investments in mobile, resulting in a late entry to the segment and far behind industry rivals. However, its execution was evident with Yahoo expanding its workforce in its mobile division to 500 employees from a mere 60 when Mayer took over.

Today its mobile investments are beginning to show moderate returns. Success with its News Digest and Weather Apps, breaking the top 10 most used apps, showed great progress. Unfortunately Apple just threw a wrench in Yahoo's mobile resurrection, as the company recently announced it will no longer provide the Yahoo Weather app. Despite Yahoo being cut out, its mobile presence is doubling in every metric that the company currently has. This has allowed Yahoo to record 430 million unique visitors compared to 150 million users in 2010. Aside from this, the display ad revenue from the mobile space also doubled during the first quarter over the previous year period.

Currently, YouTube and Facebook (NASDAQ:FB) accounts for one third of the total mobile web traffic, whereas Yahoo has no place among the top ten list.

Why Mobile Is Critical

Networking company Cisco Systems (NASDAQ:CSCO) has released some interesting takeaways from its annual global mobile traffic outlook. The smart devices are set to take over the world from the desktop devices. Therefore, mobile apps are critical for any company to grow in the segment. Yahoo, which is a late entrant, needs to speed up its efforts to catch up with the rest to generate sizeable revenue.

Cisco's annual outlook sees mobile data traffic reaching 190 exabytes a year by 2018 compared to just 18 exabytes in the year 2013. It is backed by a very significant uptick in mobile connectivity. The research points out ten billion mobile-ready connections and devices by the turn of 2018. This includes personal mobile devices of eight billion and machine-to-machine connections of two billion. In comparison, it was only seven million machine-to-machine connections and mobile-ready devices in 2013.

Importance of Smart Devices

The networking company's analysis also predicted 20 hours of video watching a month, ten hours of video listening, making of 11 video calls and 20 apps downloading by the year 2018 compared to two hours each of video watching and listening, five video calls, and two apps downloading in 2013. Most significantly, tablets, smartphones, and laptops are expected to make 94% of mobile traffic in the next five years.

Cisco estimates that wearable devices would reach an astonishing number of 176.9 million devices by five years from 21.7 million in 2013. The connectivity speed is also predicted to go up to 2.5 Mbps in 2018 from 1.4 Mbps in 2013.

Ad Revenue From Mobile

The kind of growth to be witnessed in smart devices, tablets or laptops will naturally turn into advertising revenue. Therefore, everyone is keen to catch up with the current trend and make the most from the available opportunities in the mobile segment.

An estimate by eMarketer indicates that $17.7 billion will be spent on mobile ads by businesses in the current year, indicating 35% uptick from the previous year. The growth rate is likely to be continued to reach $58 billion by 2018. More importantly, it will represent 71% of total digital ad spending, thus indicating the kind of importance that mobile and smart devices are going to play in the future business.

Bottom Line

Yahoo shares have undoubtedly become one of the few stocks to have found some of its old fortunes recently. However, it has a long way to go. Considering that rivals are also making significant investments, Yahoo needs to catch up with not only its rivals, but also be innovative in convincing users to visit regularly to continually increase traffic. Since the mobile segment is growing and becoming a larger part of the future business revenue, Yahoo faces a distinct challenge to show investors that core growth will finally catch up to competitors. It will be a make or break situation for Yahoo to take advantage of the available business opportunities. The Alibaba IPO will be an inflection point for investors as they look to the future and must see internal strength in Yahoo.

Disclosure: The author is long YHOO, FB. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.